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

No. 1481

Sir: I have the honor to refer to my despatch No. 1476 of June 3, 1933,26 transmitting the Chilean note on the general subject of compensation agreements and frozen credits and to make additional comments and suggestions.

Reviewing the situation in the light of this recent development, the following two factors stand out as very definitely controlling any effort which may be made at this time to regulate the problem of the liquidation of frozen credits:

There is a serious shortage of foreign exchange in Chile. Last year the total available exchange, with imports at the lowest level in postwar years, was approximately 24 million dollars. Failing a sharp trade revival, the amount of exchange available this year is estimated to be about two millions less, with 36 million dollars needed to cover essential purchases and other requirements. Under these circumstances it is obviously too much to expect Chile voluntarily to pledge or earmark for the release of American frozen credits any substantial sum out of their meager resources of foreign exchange.
An agreement at the London Conference to cancel all compensation agreements would mean for the United States merely a removal of a discrimination against our trade in Chile. While this would eliminate a source of irritation it would not meet the immediate problem of how to make more exchange available for American creditors and for the purchase of American goods.

Considering the above figures and the several other determining factors, the evidence pointing to a compensation agreement as the one effective solution becomes impressively strong. It follows also that a remedy will be found only if we are prepared to take the initiative and insist upon some reciprocal arrangement to provide for the repatriation of our frozen credits here. On the assumption that ultimately some remedial action is contemplated, a policy of continuing the discussions to keep this eventuality before the Chilean authorities seems clearly indicated. Should the Department not be disposed to resort to measures involving the preemption of exchange the only alternative then appears to be a private loan such as was arranged in connection with the “Roca Agreement” between Great Britain and the Argentine. This in turn would depend upon the decision of American business interests as to whether it would be worth while assuming this risk to [Page 132] obtain the release of their frozen credits and to maintain a fair volume of commerce with Chile.

After a full reconsideration of the immediate needs of American business interests in Chile, we have come to the conclusion that a modification of our approach to the general question is desirable. We should avail ourselves of the goodwill which exists in the Chilean Foreign Office at this time to do something. We therefore believe that we should proceed definitely with a proposal to the Chilean Government to negotiate an agreement along the lines indicated in despatch No. 1461, May 17, 1933. Our attitude of disapproval of compensation agreements can be taken care of by a statement at the time we proposed the convention to the effect that if compensation agreements are removed by an agreement at London, any such agreement between the United States and Chile will fall at the same time. In other words, we believe that the ultimate gains for American interests indicate affirmative action at this time on the assumption of a bilateral agreement which will be subsequently modified in the light of any decisions reached at London. This procedure has the great advantage of not losing any time or opportunity.

Respectfully yours,

W. S. Culbertson
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