825.5151/81

The Ambassador in Chile (Culbertson) to the Secretary of State

No. 1366

Sir: I have the honor to refer to this Embassy’s despatch No. 1288 of October 26, 19321 reporting conversations which we had at that time concerning various issues affecting American interests arising through exchange control regulations and enclosing a copy of a memorandum dated October 24, 1932, which was left with the Foreign Office and which set forth our position on these problems.

Under the new Government far from being settled many of the old difficulties have been aggravated or raised in a new form and the vigorous nationalistic policy which the Alessandri Government has pursued since its inauguration2 has brought new and perhaps even more serious threats against our interests. In addition to the problems arising through exchange control difficulties with which we have been grappling for months two important new issues have developed since the inauguration of Alessandri. These are the attitude which has been adopted toward the nitrate situation3 and the apparent intention of the Government to effect the cancelation of the gold surcharge clause of the concession-contract of the electric company through ministerial decree.… I felt the problem should be approached first by a direct conversation with the Executive followed by subsequent contacts with other appropriate branches of the Government. My interview with the President is reported in my despatch No. 1365 of January 25, 1933.4 As experience has shown that the numerous complicated issues arising from exchange control regulations can be most effectively dealt with by leaving a memorandum with the Foreign Office prior to discussions or elaborations of the [Page 104] points at issue, such a memorandum (copy enclosed) was prepared and handed by me to Señor Cruchaga, the Minister of Foreign Affairs, on January 24. The Minister did not enter into a discussion of the memorandum but promised that the points would be thoroughly gone into. He did make the suggestion, however, that I discuss these questions with Señor Ross, the Minister of Hacienda, and implied that something constructive would come out of such a discussion. To-day I had an interview with Ross and, among other questions, took up the problems arising through exchange control difficulties. A copy of a memorandum covering this phase of my interview is enclosed.

It will be noted that among the various points dealt with in the memorandum, articles 8, 9, and 10 treat of the French Compensation Agreement5 and that the intention of the American Government to request that equivalent treatment be granted to American commerce is reaffirmed. Supplementing the conversations which I have recently had at the Department on this subject there is enclosed a copy of the Note addressed to the Chilean Government by this Embassy on November 9, 1932, and which embodied in formal form our request for equivalent treatment.

Respectfully yours,

W. S. Culbertson
[Enclosure 1—Memorandum]

The American Embassy to the Chilean Ministry for Foreign Affairs

On October 24, 1932, the Embassy submitted to the Ministry for Foreign Affairs a memorandum (copy enclosed)6 outlining important problems pending at that time and citing various types of cases illustrative of the serious difficulties confronting American interests and setting forth our position thereon. Since that date, far from being settled, many of these difficulties have become aggravated. There is outlined in this memorandum a restatement of these problems as they appear to us at the present moment, together with new matters which have since arisen.

I.

As before stated, American enterprises in Chile and the American Government recognize and sympathize with the economic difficulties which confront Chile at the present time. American concerns have already lost heavily as a result of the general economic depression and particularly as a result of the depreciation of the Chilean currency. [Page 105] In a number of cases businesses have maintained production under conditions which were not commercially sound but in the interests of national economy. They have made no unreasonable requests of the Chilean Government and no such requests will be made in the future. In justice, therefore, we believe that the same consideration should be granted to American enterprises in Chile as is given to Chilean enterprises and that they should receive treatment no less favorable than that which is accorded to other concerns operating within the country. We expect also that American enterprises be granted treatment equivalent to that accorded to the enterprises of any other foreign country. It is sometimes forgotten that Chileans have as great an interest as Americans in the continued solvency and operation of these industries.

II.

In facing the currency situation in Chile today it is desirable at the outset to recognize the facts. The fiction of an official rate of exchange may be maintained for the purposes of the general public but it cannot be maintained as a principle for the determination of the rights and privileges of the individuals affected. The facts are that there exist in Chile at the present time four rates of exchange:

A.
The official rate of approximately 16.50 pesos to the dollar;
B.
The rate at which foreign currency is sold on the unofficial market;
C.
The rate at which export drafts are sold with the approval of the Chilean Government against importations;
D.
The rate at which gold is sold in paper pesos.

III.

The export draft rate approximates the rate on the unofficial market and the “gold” rate and is in fact the true economic value of the Chilean currency. So far as is known no Chilean or Chilean enterprise sells foreign currency to the Central Bank at the official rate. If this statement needs qualification, the true information concerning the situation can no doubt be furnished by the Commission of Exchange Control. It is a matter of common knowledge that the wool companies of Magallanes, the fruit companies of Central Chile, the Chilean (topper companies and other similar concerns are freely selling such drafts as come into their possession for a rate which has ranged within recent months from 35 to 50 pesos to the dollar. So far as it has been possible to obtain information concerning the somewhat secretive transactions of the Commission of Exchange Control, it appears that the only concerns in Chile now selling foreign currency at the official rate are the American copper companies.

[Page 106]

IV.

Even Government agencies are using the export rate in their transactions although it might be reasonably expected that they would support the Government’s policy of maintaining the official rate by selling foreign drafts to the Central Bank at the official rate. Without criticizing the policy of the Caja Minero, the fact remains that the Caja Minero sells the drafts which it receives from the sale of ore at the export rate and this procedure would indicate the justice of a similar policy in the case of foreign enterprises which may find it desirable to resort to it.

V.

These observations constitute the approach to a number of problems which confront American interests in Chile at the present time.

A.
Since by a liberal and even extra-legal interpretation of the exchange law, Chilean interests are now able to sell their foreign drafts at their current economic value in Chile, no serious objection can be raised to steps which American enterprises may find it necessary to take in order to maintain their solvency and business structure. This observation is particularly pertinent to the American copper companies which unless afforded relief in this matter may find it impossible to continue operations.
B.
American interests hope that some day the paper peso will return to the value of the gold peso. However, in justice to these interests their business policy should not be restricted by the fiction that the paper peso is equivalent to the gold peso at the same time that Chilean enterprises are dealing openly on the basis of a paper peso one-fourth or one-fifth the value of the gold peso. Under the force of economic laws, prices in Chile must and will gradually adjust themselves to the actual value of the currency. Prices include the rates charged by the public utility companies for light, power, and telephone service. The Government is already permitting an increase in railroad rates and it has in effect recognized the de facto peso in itself imposing a surcharge of 100% on customs and other revenues. Other prices are beginning to adjust themselves to the new economic situation. The decree, therefore, which suspended the right of the electric company to impose a surcharge effected not only an infringement of the obligation of contract (a point which will be considered in another memorandum) but was also contrary to the economic tendency at the present time.
C.
The American copper companies remain the only concerns selling their foreign drafts at the official rate and if they are to continue to submit to this discrimination they should be given reasonable and [Page 107] fair consideration in other matters. If they are not, the time may come when it will be impossible for them to maintain production.

VI.

Another problem which must receive urgent consideration at this time is the retirement funds of American citizens in the Caja de Previsión de Empleados Particulares. It will be recalled that the law obligates employees of private companies to deposit monthly in the Caja a percentage of their salaries toward a retirement fund. These employees may designate the currency, foreign or local, of their retirement funds it being further provided that retirement repayments will be made in the currency thus chosen. The majority of American citizens elected to make their contributions in dollars at an interest rate of only 3% as compared with the prevailing rate of 6% on funds in local currency. Thus a definite obligation was created against the Chilean authorities to repay the capital contribution, with interests, in the currency in which it was made to the employee upon his retirement from employment in Chile. This obligation is of a very special character, in the nature of a trust.

However, since the Commission of Control of International Exchange began to operate it has been impossible to obtain the remission abroad of these funds which have become due or even their release locally. At the present time many of the contributors who are entitled to the repayment of their funds under the law are in great difficulty, being without employment. Other contributors, having exhausted all other resources, are actually suffering privations. In view of this situation of actual individual need and the smallness of the sums involved, special consideration should be accorded these cases.

VII.

With regard to the question of re-export of consignment merchandise, as has been previously stated, we feel that in all justice, either the Company concerned should be permitted to re-export its products brought into Chile or it should be granted foreign exchange sufficient to meet its obligations owed abroad. A new situation has now arisen in regard to this particular question. It will be recalled that with the knowledge and concurrence of all authorities concerned the Foreign Office in November of 1932 entered into a definite understanding with us in regard to re-exportations. This understanding provided that authorization would be granted to permit the re-exportation of the merchandise in question under the condition that the full value thereof would be returned to Chile within a reasonable time or when the Chilean market might be in a position to renew its purchases. At the time the agreement was made a 10% quota was not considered [Page 108] and the question of bank guarantees was raised but was definitely excluded. In spite of this these qualifications were subsequently added by the Control Commission. It may be pointed out that the assurances which the Foreign Office gave in November were accepted in good faith and the situation which has now been created by the action of the Control Commission and the Ministry of Hacienda is in every way unacceptable.

VIII.

Chile has surrendered, at least temporarily, a portion of her control over her exchange situation. The compensation agreements, first with France and then with Spain, place in the hands of foreigners the disposition of a large amount of foreign currency which is so necessary to Chile’s essential needs at the present time and these foreigners are at liberty to use this foreign currency to reimburse themselves for goods exported to Chile and for the payment of back commercial debts.

IX.

In these circumstances, the American Government must consider the results which the foreign commerce of France and other countries obtain from such agreements with Chile and must reaffirm its request that equivalent treatment be granted to American commerce effective from the date on which such agreements go into effect. In other words, the American Government asks that whatever amount of foreign exchange France retains as a result of her agreement with Chile, that a similar amount be made available to American commerce through the Commission of Exchange Control in Santiago. This request was made officially and formally by the American Government in the Note of this Embassy, No. 903 dated November 9, 1932.7

X.

If, as a result of the economic situation in Chile, sufficient exchange is not available to place American enterprises on an equality with the position exacted by France in its compensation agreement, consideration should be given to determine what other treatment can be accorded to American business equivalent to that accorded to France. In this connection, account must be taken of those problems upon which the American Government has already made its position clear, such as:

  • The release of bank deposits in foreign currency in Chilean banks;
  • The payment of funds due to Americans in the Caja de Retiro;
  • The release for re-export of products owned by American concerns and on consignment in Chile.

[Page 109]

XI.

Summarizing the general attitude of the American Government, it may be said that if exchange control is to continue in Chile the American Government asks for its citizens equal and fair administration:—

A.
Between American interests doing business in Chile and Chilean interests;
B.
And between American nationals and the nationals of any other country.

[Enclosure 2]

Memorandum by the American Ambassador (Culbertson) of a Conversation With the Chilean Minister of Hacienda (Ross)8

Mr. Ross had in his hand a copy of my memorandum on currency problems (enclosure No. 1, Despatch 1366, January 25, 1933). He had read the memorandum and had discussed it with Mr. Cruchaga. His first remark to me was that he found my observations on the various problems very reasonable.

I spoke of my note No. 903 in which we have requested treatment equivalent to that accorded France under her compensation agreement with Chile and I added that, while we did not wish to appear at any time unreasonable in our requests in view of the difficult economic position in which Chile finds itself, that nevertheless there had been a reluctance by the Chilean authorities to grant relief to American interests even in those cases which would not affect seriously the exchange situation of Chile.

We spoke in the first place of bank deposits in foreign currency owned by American citizens. Both Mr. Cruchaga and Mr. Ross stated emphatically that their Government would not support the policy of forcible conversion. Mr. Ross stated that in those cases in which the bank was willing and able to release the deposits his Government would impose no objection whatever but in the case of those banks which felt that they would be embarrassed by releasing deposits in foreign money he felt that a policy of gradual release would have to be worked out. I reminded him of the provision in Law 5107 providing for a 20% release every three months. I also reminded him that permission had to be granted in cases of release through the Commission of Exchange Control.

[Page 110]

In this connection I spoke of the deposit of the Dupont-Atlas Company and the proposal to use this deposit to pay for Chilean copper needed by the Imperial Chemical Company. Ross stated definitely that such a transaction would meet with his approval and asked for further information concerning it.

In the case of re-exportation of articles on consignment it was evident that he had been influenced by the Labor Minister who had told him that the machines which the Singer Company desire to re-export are rented machines. I stated to him that this was not the case and gave him a memorandum showing that the machines which would remain for sale in Chile even after the machines in controversy were exported were ample for the country’s needs. He apparently desires to handle the matter himself and asked that the representative of the Singer Sewing Machine Company call to see him.

Ross spoke with considerable sympathy on the situation of the copper companies. He stated that it was unfair for them to have to sell their dollars at 16.5. However, he said frankly that he would not want the companies to reduce the number of dollars which they sold in Chile. He said that he would propose to the companies to allow them a better rate in pesos if they would agree to continue to bring into Chile the same number of dollars that they are bringing in at the present time. He thought that the companies could use the extra pesos to purchase Chilean coal and for other purposes within the country. He also stated that there had been a secret exchange of letters supplemental to the French Compensation Agreement which reduced the percentage of exchange which the French retain in the case of copper from 100% to, I think he said 25%; in any case a substantial reduction which will permit copper sales in France.

Ross also stated that the observations in my memorandum concerning the retirement fund were reasonable but he raised the question as to what could be done in view of the financial condition of the Caja. I told him that there were certain needy cases which I would bring to the attention of the Foreign Office and I hoped that some effort would be made to relieve them.

In general the impression I received was that Ross would make a serious effort to solve favorably some of the problems affecting American interests arising out of the currency situation.

The conversation then turned to nitrate for which see memorandum, enclosure No. 2 of Despatch No. 1365, January 25, 1933.9

W. S. Culbertson
[Page 111]
[Enclosure 3]

The American Ambassador (Culbertson) to the Chilean Minister for Foreign Affairs (Matte)

No. 903

Excellency: With reference to the compensation agreement recently concluded at Paris between Your Excellency’s Government and the Government of France, and acting under instructions from my Government, I have the honor to inform Your Excellency that the Government of the United States anticipates that the Government of Chile will accord to it a treatment equivalent to that granted to France under the said compensation agreement, from the date on which that agreement became effective.

I avail myself [etc.]

W. S. Culbertson
  1. Not printed.
  2. For correspondence regarding the revolutions in Chile in 1932, see Foreign Relations, 1932, vol. v, pp. 430 ff.
  3. For correspondence regarding the nitrate situation, see pp. 154 ff.
  4. Not printed; but see telegram No. 19, January 31, 7 p.m., p. 159.
  5. For text of the agreement, signed November 11, 1932, see F. Illanes, Nuestros Tratados de Comercio, p. 70.
  6. Not attached to file copy.
  7. Enclosure 3, p. 111.
  8. Mr. Cruchaga, the Minister for Foreign Affairs, was also present.
  9. Not printed.