825.5151/81
The Ambassador in Chile (
Culbertson
) to the Secretary of State
No. 1366
Santiago
, January 25, 1933.
[Received
February 2.]
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,
[Enclosure 1—Memorandum]
The American Embassy
to the Chilean Ministry for Foreign
Affairs
Santiago
, January 24, 1933.
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
[
Santiago
,] January 25, 1933.
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
[Page 111]
[Enclosure 3]
The American Ambassador (
Culbertson
) to the Chilean Minister for Foreign Affairs
(
Matte
)
No. 903
Santiago
, November 9, 1932.
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.]