The Chargé in Spain ( Whitehouse ) to the Secretary of State

No. 1302

Sir: I have the honor to refer to the Embassy’s despatch No. 1278 of June 21st, 1929 having to do with the negotiations in Madrid for the settlement of the claims of the French and American petroleum companies expropriated by the Spanish Government.

I am now glad to be able to report that negotiations have been finally successful and that, after a great deal of discussion, the Finance Minister has agreed to accept the plan of payment proposed by the Embassy in the memorandum transmitted with the above referred to despatch. The only substantial modifications of the plan are in regard to the margin to be allowed for the sale of the pesetas and the period of time during which sales of exchange will take place.

Briefly stated the plan is that the Babel and Nervion company will receive on August 1st some 31,000,000 pesetas, representing the total amount due for principal and interest converted into dollars at the rate of 6 pesetas to the dollar, and back into pesetas at the rate of exchange of the day. This amount of money will be deposited in the bank and seven equal monthly installments of pesetas will be sold for the account of the company. The originally proposed margin of 2 centimos to the dollar has with the agreement of the company been increased to 5 centimos, which means that, supposing the rate of exchange to be 7 pesetas to the dollar on the day that payment is finally made (August 1st), the company selling the exchange, if it is only able to obtain an average rate of 7.05 to the dollar, will take this small loss, and if, on the other hand, it is able to obtain an average rate of say 6.95 to the dollar, it will take the corresponding profit. If sales of exchange are made over the seven months period at an average price of below 7.05 the Spanish Government guarantees to make good any loss, and if sales are made at better than 6.95 to the dollar the company guarantees to give the Spanish Government any profit accruing therefrom.

As this despatch is being written I understand that the other French companies (Deutsch and Desmarais Freres) have decided to accept this method of settlement. They were only persuaded to do so, however, after long negotiations and after a considerable amount of obstruction both from them and from certain elements in the French Embassy.

The Department will recall that the French Embassy wished to obtain a straight gold payment raising a loan therefor, but this turned out to be impractical and the scheme suggested by this Embassy, [Page 788] although in the nature of a compromise, was probably the most satisfactory settlement which could be arranged. The acceptance of the other French companies is, I think, a favorable factor, because in the event of any deviation from the Spanish Government’s promises joint pressure could be brought to bear by both the American and the French Governments. I do not, however, anticipate any difficulties, as I believe the Minister of Finance is heartily tired of the whole matter and is delighted with the settlement which, up to a certain point, allows him to save face and, incidentally, avoids dumping a large number of pesetas on the market in the immediate future.

For the Department’s information I am enclosing herewith a copy of Mr. Hammond’s last letter to the Finance Minister and a copy of his reply thereto, with translation,19 which seems to cover all principal points and only leaves certain minor details to be worked out.

I am also including herewith a copy of the English translation of the slightly amended basic agreement19 which has been worked out by the exchange expert of the Bank of Spain. The text of this agreement shows little substantial deviation from the plan originally submitted by the Embassy and enclosed with the despatch No. 1278 of June 21st, 1929, the main points of this being the slightly increased margin for exchange sales and the extension of the period during which the sales are to be made.20

I have [etc.]

Sheldon Whitehouse
  1. Not printed.
  2. Not printed.
  3. In his despatch No. 1315 of July 29, 1929 (not printed), the Chargé informed the Department that the Minister of Finance had issued a Royal order dated July 19 making effective the arrangements outlined above (452.11/227).