The Secretary of State to the Minister in Uruguay (Wright)

No. 47

Sir: The Department refers to your telegram No. 54, dated September 2,1 in which you make certain suggestions for the consideration of the Federal Reserve Bank of New York in connection with the discussions which are to take place with the representative of the Uruguayan central bank.

You state that the International Telephone and Telegraph Corporation, irrespective of the long standing ad referendum contract awarded to a company subsequently acquired by that corporation, has filed a proposal to construct and operate a telephone system from Montevideo to be extended through the entire country if desired, and add that a technical opinion favorable to a German firm has been rendered on an allegedly irregular consideration of bids for the construction, but not operation, of a system of more limited extent. You add that the proposed contract has not been awarded because of the Government’s lack of sufficient funds, and suggest that it might be deemed advisable to obtain assurance that any credits which may be extended by American financial institutions shall not be devoted, even indirectly, to payments on contracts awarded to other than American firms. You further indicate that the representatives of the International Telephone and Telegraph Corporation in Montevideo are aware that you have advanced this suggestion.

The Department’s attention was drawn to the question of a telephone system in Uruguay as early as 1911 and there has been an extensive correspondence on that subject since 1921. In 1926, at a time when the Uruguayan Government was attempting to float a loan in the United States, a representative of the International Standard Electric Company requested the Department’s aid in obtaining action by the Uruguayan Government looking toward compliance with the ad referendum contract of June 30, 1921, and suggested that the American [Page 1049] Minister at Montevideo be instructed to intimate informally to the Uruguayan Minister for Foreign Affairs that this Government did not look with favor upon the flotation in this country of a loan by Uruguay which did not provide funds for the fulfilment of the telephone contract. The representative of the company was informed that this could not be done and was given a copy of the Department’s Circular of March 3, 1922, regarding foreign loans.2 The Department considers foreign loans submitted to it in the line of governmental policy and since no governmental policy was involved in the contract under reference the Department did not care to take the action requested.

The possibility of the Department exerting pressure on the Uruguayan Government for the fulfilment of the telephone contract as a prerequisite to its approval of the proposed loan continued under discussion for several months, but the Department continued to limit its assistance to instructing the Legation at Montevideo to use its good offices on the company’s behalf.

The suggestion which you now make is very similar to the request made by the representative of the International Standard Electric Company in 1926. Circumstances vary in that the Uruguayan central bank is now seeking a credit from the Federal Reserve Bank in New York, whereas in 1926 the Uruguayan Government was seeking a loan from private bankers, but the Department’s policy of not attempting to prevent a foreign borrower from using the proceeds of its borrowing in any legitimate manner it sees fit continues in full force.

The Department regrets that local representatives of the International Telephone and Telegraph Corporation were made aware of your suggestion.

Very truly yours,

For the Secretary of State:
Francis White
  1. Not printed.
  2. See press release issued by the Department, March 3, 1922, Foreign Relations, 1922, vol. i, p. 557.