422.11 G 93/1159: Telegram

The Acting Secretary of State to the Minister in Ecuador ( Hartman )

2. Your February 3, 5 p.m.

You are instructed to investigate and report immediately and fully relative to suspension since January 15th of daily deposits and particularly whether this suspension is temporary or apparently a new and permanent policy of the administration and whether, in your opinion, the Government is in such financial straits as to justify such action. Unless new factors have arisen which materially change the situation, the Department finds it difficult to sanction the action of the Government of Ecuador in failing to remit to London sums now due because of the alleged reason that British exchange cannot be bought at a reasonable figure. The exchange situation throughout the world makes it difficult for those Governments whose currency has depreciated to meet their obligations at present, but the policy of defaulting on obligations because of unfavorable exchange rates, as the Government of Ecuador has done, renders the exchange situation more difficult of solution.

While the Government of Ecuador has given assurance that none of the funds deposited will be withdrawn or devoted to other uses, nevertheless the Department has been apprised of no reason why these sums should not be deposited to the credit of the Council of Foreign Bondholders and remitted to London as provided for in the contract. Unless the financial condition of Ecuador absolutely requires such action, the Department is unwilling to concur at the present time in the President’s proposed plan to pay the total amount of deposits to Bondholders at the rate of ten sucres per pound. This plan in effect establishes an artificial rate of exchange and in the event that sucres are quoted at ten to the pound sterling or even lower for any length of time, the Department would be placed in the position of assenting to an indefinite suspension of the remittances to London in direct contravention to the terms of the contract.