Memorandum of Mr. Hugh R. Wilson, of the Division of Latin American Affairs of the Department of State

Memorandum of meeting for the discussion of the [proposed] reorganization of Guatemalan monetary system.

There were present:

  • Mr. Soto Hall,
  • Mr. Giron,
  • Mr. Serrano Munoz,
  • Professor Kemmerer,
  • Dr. Rowe,
  • Messrs. Wilson,
  • Munro and
  • Scotten.

It is needless to summarize the digest of the report that Dr. Kemmerer made in view of the fact that it is all set forth in his report, copies of which are now in the Department. It seems advisable, therefore, merely to summarize the questions and objections brought up by the Guatemalan Delegation and Professor Kemmerer’s answer thereto.

Mr. Giron expressed a further objection to the present fluctuations in exchange. Merchants who own imported goods for which they must pay money based on gold standard take no chances with the fluctuations and charge profits in pesos large enough to cover any loss that there may be by a sudden drop in exchange. Mr. Giron stated that the prices were often based on 60 to 1 when exchange was 30 to 1.

Mr. Giron also explained that the exchange is in the hands of two or three banking houses which manipulate as they see fit. When money is needed to move the coffee crop the banks can tighten on exchange and relieve it again when money is abundant after the crop has been paid for. The banks furthermore discriminate for their friends and by their controlling interests can refuse loans to those persons who may not be in their good graces.

After Professor Kemmerer had explained the broad control that he advocated for the proposed National Bank, Mr. Giron objected that this would leave the control exactly where it is now and that the same evils would result therefrom. Mr. Giron mentioned that the Government income from the export tax was roughly two million gold and asked Professor Kemmerer whether he did not think that [Page 285] the Government could eventually save the situation by aiding the banks with this sum to retire the notes under Government supervision. Professor Kemmerer replied that under the system he advocated there would be very little profit in the manipulation of exchange as the gold would so fix the value of Guatemalan currency that the exchange would only fluctuate within the same narrow limits as the exchange between London and New York for example. Furthermore the plan advocates Government supervision. The Government would have, perhaps, two members on the Board of Directors and share in the profits above a cumulative profit for stock-holders. Professor Kemmerer was emphatically of the opinion that the Government could not save the situation with the Revenue on the Coffee Export Tax, both because a considerable amount of this tax was pledged for the payment of the British Foreign Loan and because halfway endeavors would merely postpone the inevitable crash.

After Professor Kemmerer’s explanation concerning the method for the means of retirement of the outstanding bank notes, Mr. Giron objected that the Government does not owe banks anywhere nearly as much as the outstanding indebtedness in notes. Professor Kemmerer explained that the bank was only obliged to retire at once the value of four-fifths of the gold currency turned over to it by the Government in payment for debt, leaving a margin of one-fifth of gold currency to guarantee the rest of the outstanding bank notes. Furthermore the banks could offer their collateral to the National Bank, even that collateral which could not be realized on it [sic] at the moment because of conditions brought about by the earthquake, the National Bank would discount these notes thus giving further reserve for the stabilization of the outstanding bank notes. The retirement of these bank notes would be a slow process covering several years and Professor Kemmerer stated emphatically that such banks that could not use this assistance and handle this retirement were already in a bankrupt position and the sooner they were declared bankrupt, the better for the stability of Guatemalan finance.

Mr. Giron again urged the consideration of a Government bank as opposed to a bank made up in a great part of foreign capital and controlled by such foreign interests. Professor Kemmerer in reply pointed out that capital was very timid and would not seek investment in a Government-controlled concern.

Mr. Giron objected again that all banks in Guatemala would close because of competition from the National Bank. Professor Kemmerer pointed out that the plan provides that the National Bank cannot give loans of over nine months duration, cannot loan on real estate mortgages nor can it accept and pay interest on time deposits. This excluded a large field of commercial activity from the operations [Page 286] of the National Bank and gave scope for the large business to the other banks of Guatemala. Mr. Giron stated that he was a stockholder in all the Guatemalan banks and he still believed they would all have to close their doors at the establishment of the National Bank but that this was a sacrifice which stock-holders should be willing to make for the benefit of the Guatemalan people at large.

Hugh R. Wilson