Cutting the Gordian Knot: Reassessing Australia's Lend-Lease Settlement1

During the Second World War, Australia received almost $2 billion worth of Lend-Lease aid from the United States — the largest foreign debt ever incurred by the Commonwealth. The settlement terms for this debt, however, were never defined or discussed during that conflict, remaining “an uncertain obligation to be assessed by an unknown person on an unspecified day of judgment.”² This paper examines the economic, military, and geopolitical factors that shaped Australia's Lend-Lease Settlement Agreement of June 1946. It focusses on the military aircraft which accounted for a quarter of this foreign debt. The least saleable of all Lend-Lease surpluses, these also proved the most challenging for US and Australian negotiators. Having contested initial US claims and secured sizeable debt reductions, Lend-Lease settlement was trumpeted by the Chifley government as a great diplomatic success. Findings from this investigation indicate instead that Australia's Lend-Lease settlement terms were restrictive, and possibly punitive, having been substantially determined by US domestic and partisan-political considerations. Moreover, these details and their significant implications were withheld from the public, the media, and the parliamentary opposition in the months leading to the September 1946 federal election.