File No. 852.51/56

The Ambassador in Spain ( Willard ) to the Secretary of State

[Telegram]

Following for Leffingwell [from Davis]:

No. 9. Subject to agreement by Bank of Spain, Government and bankers have tentatively agreed to establish credits in favor of New York banks up to 250,000,000 pesetas to be made available as promptly as possible. Ninety-day bills [to be] drawn on specified Spanish banks by American banks and guaranteed by deposit in New York with trustee selected by Treasury Department and Spanish Ambassador of equal amount of Treasury certificates of indebtedness. Spanish banks are to charge ⅛ of 1 per cent for each 90-day acceptance and are to discount bills at the rate of 4½ per cent provided Bank of Spain agrees, for duration of credit, to rediscount same at 3½ per cent. Spanish officials express confidence in securing Bank of Spain’s consent to this plan. He [sic] stated that governor and executive committee of Bank of Spain are all absent for summer but Minister of State has telegraphed them to be in San Sebastian for conference Saturday. I shall leave for there tomorrow to attend conferences and, if possible, to conclude negotiations.

There is stamp tax of 4 pesetas per thousand on 90-day bills which, if paid by American banks drawing the bills, would make funds received under credit cost altogether 5⅗ per cent interest. I am endeavoring to get Spanish bankers to assume this tax or Government to exempt same, but am not very hopeful of success.

As it might take some time to arrange syndicate for entire 250,000,000 pesetas, Banks of Barcelona and Urquijo have practically agreed to establish credit of 75,000,000 pesetas on the same conditions, and as part of but independent of larger credit, conditional on obtaining approval of Bank of Spain of which 25,000,000 pesetas will be made available as soon as details can be arranged and 50,000,000 in September. These two banks will also undertake to arrange the syndicate for 175,000,000 pesetas to complete amount desired. Present understanding is that bills may be renewed until approximately nine months from now, at which time 25 per cent of credit used will be liquidated and thereafter 25 per cent every 90 days. Have explained to Spanish Government that we would reserve option under present agreement to receive payment for cotton and petroleum in dollars or in pesetas at current rate and after this, option to receive payment in pesetas at par of exchange. Under such arrangement [Page 1701] it appears we could easily cover our requirements and liquidate credit as indicated.

In order to make first 25,000,000 pesetas available as soon as possible Banks of Barcelona and Urquijo suggest that when proposed arrangements are agreed upon and completed, the American banks which are to draw the bills for first 25,000,000 pesetas may authorize someone here to issue the bills on their behalf. Understand bills for first 75,000,000 pesetas will be drawn on Urquijo and Bank of Barcelona in equal amounts. Unless you consider it advisable, do not see necessity of forming American banking syndicate, as agreement may provide that any American bank may draw bills against credit to extent of Treasury certificates purchased and deposited by them. It may be expedient and advisable for first 25,000,000 and probably entire 75,000,000 pesetas bills on Banks of Barcelona and Urquijo to be drawn by American banks which have relations with these banks and that when names are obtained of Spanish banks participating in 175,000,000 pesetas credits, similar procedure be followed. Assume you will make arrangements with banks there which are to draw the bills for turning over the proceeds to Treasury or Army and will advise me what banks will bid for first bills.

Before going to San Sebastian hope to reach agreement with Spanish officials here, subject to approval (by?) Washington, relative to reciprocal supply of materials after expiration of present agreement. Think it will be unnecessary to increase quantities beyond those specified in present agreement. But naturally, in consideration of establishing proposed credit and continuing to supply us with materials specified in agreement, they request assurances that we will continue to furnish them with cotton, oils, etc. Spanish Government is now ahead of us in performance of agreement. Unfortunately some of principal requirements of our Army from here, namely, horses, mules, railroad ties, and laborers, were not provided for in present agreement and understand only delays in obtaining licenses for exports have been for such purchases not included in agreement. Spanish Government has, however, just consented to shipment of several thousand railroad ties and about 6,000 horses and mules but it will be difficult, if not impossible, to get them lift embargo against further exportation of horses and mules. They claim that French since the beginning of the war have taken out 400,000 horses and mules as a result of which prices have increased from 500 to 2,200 pesetas per head; that even at this price Spanish Army is having considerable difficulty in purchasing its annual requirement of remounts and that further depletion of stock will have disastrous effect on agricultural output. Some of our representatives think [Page 1702] embargo on further exports was instigated by Germans. While this may be true, in my opinion, ruling consideration was that above stated. Understand Pershing cabled War Department two weeks ago to request State Department to make strong representations to obtain consent of Spanish Government to permit continuance of exports of horses and mules. Ambassador Willard has, however, received no instructions from State Department and under such circumstances I should like to know to what extent contemplated negotiations should be contingent on obtaining further concessions.

Minister of Labor apparently inclined to allow common laborers to go to France provided it can be done in such way as to avoid infringing neutrality but will advise me definitely tomorrow.

While question of obtaining requirements for Army does not directly concern me, I feel we should assist where possible and that our purchases here [should be balanced by] our supplies to Spain which is basis for obtaining required [credit].

Willard