The issue of delinquent principal and accrued interest on loans extended by the United States during World War I, and the related question of reparations owed by Germany, has remained unresolved for nearly 60 years. Although the amounts borrowed by our World War I allies totaled approximately $12.4 billion at the time, the amount outstanding has grown to $31.6 billion by December 31, 1994, including accrued but unpaid interest and after deduction for all payments made. Some countries -- including Cuba, Finland, Hungary, Liberia, and Nicaragua -- paid their World War I debts to the U.S. in full, although the amounts originally lent to these countries were relatively small.
As you may be aware, these debts present special problems. Most debtor countries fulfilled their commitments under the original debt agreements until the great depression of the 1930s. With the exception of the former U.S.S.R. -- which repudiated all foreign debts in January 1918 -- the principal debtor countries have never denied the validity of these debts. However, these debts to the U.S. were bound up with the issue of German war reparations and the intra-European debts generated by World War I. Many European nations are net creditors on World War I indebtedness, with Germany owing to them more than they in turn owe to other nations. These countries have maintained since the 1930s that they would resume payment on their war debts to the United States on the condition that the issue of Germany's war reparations to them be satisfactorily settled.
Resolution of the issue of government claims against Germany arising from World War I was subsequently deferred "until a final general settlement of this matter" by the 1953 London Agreement on German external debts to which the U.S. is a party. This agreement was ratified after receiving the advice and consent of the U.S. Senate and has the status of a treaty. Thus, while the U.S. has never formally recognized any legal connection between the World War I obligations owed to the U.S. and reparations claims on Germany, in practical terms a linkage has been established.
The case of debts arising from World War II is somewhat less complicated. At this time only four countries, discussed below, owe the U.S. government debts of any size arising from World War II programs to aid our allies. Other countries have paid their debts in full.
The United Kingdom still has amounts outstanding from World War II and its immediate aftermath which it continues to repay on a regular basis. World War II-era claims on Iran have been incorporated into the claims being adjudicated by the Iran-U.S. Claims Tribunal, established after the 1979 Iranian revolution. Lend Lease claims against the former Soviet Union arising from World War II were settled in a 1972 agreement between the U.S. and U.S.S.R. In the 1972 agreement, the U.S.S.R. pledged to make three initial payments totaling $48 million and to repay the remaining Lend Lease debt once the United States had granted Most Favored Nations (MFN) trade status. The Soviet Union made the three initial downpayments, but because it did not obtain MFN status at that time -- because of conditions set forth in the 1974 Trade Act -- its obligation to make the remaining payments toward its Lend Lease debt was not triggered before the dissolution of the U.S.S.R. However, MFN status was extended to the Russian Federation in 1992, and accordingly, in 1993, Russia signed an agreement with the U.S. in which it acknowledged its liability and agreed to a repayment schedule for the former U.S.S.R.'s Lend Lease debt. Finally, the U.S. continues to work for a resolution with Taiwan of the issue of debts arising from World War II-era loans extended to China.
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International Finance and Development | Economic and Business Affairs | Department of State
