The Chargé in Chile ( Norweb ) to the Secretary of State
[Received November 2.]
Sir: I have the honor to report that since my despatch No. 1535 of September 6, 1933, various American interests, seizing upon a favorable moment in the Chilean financial situation, have taken the frozen credit problem into their own hands and by means of private deals with the Government have liquidated within the short space of a few weeks at least $2,000,000 of their blocked funds.
The details of the negotiations that resulted in the repatriation of these funds are quickly told. In the last three months Chilean currency has appreciated 100% and dollars can now be bought for about 25 pesos instead of at the former rate of 50 pesos. At this relatively reasonable level, foreign interests began to seek means for obtaining [Page 136] foreign exchange in order to move their funds and the idea was conceived of offering a hard-pressed government a premium of 15 to 20% on all money transferred out of the country. The bait proved irresistible and it was not difficult to obtain the cooperation of the Finance Minister and through him, that of the Exchange Control Commission. For all the Government’s assistance, however, the plan would not have been possible if American business, in its eagerness to move funds from Chile, had not been willing to pay for the privilege at a rate 2¼ times the prevailing rates for commercial credits under compensation agreements, and if the recent improvement in export trade conditions had not, for the first time in two years, provided foreign exchange substantially in excess of current requirements.
All transactions under this arrangement are secret as they are in a sense extra-legal. This aspect has caused several American firms to hesitate to avail themselves of the opportunity, but the only danger of future repercussions would seem to be in the remote possibility of a Congressional investigation and even in that event the attack would probably center on the disclosure of Government connivance. The principal companies involved are the General Motors, National City Bank of New York, All America Cables, the International Telephone and Telegraph Company, the local subsidiary of the Standard Oil Company of New Jersey, and, among British firms, the Shell-Mex, Chile, Limited; but smaller enterprises and private individuals with blocked funds also have been obtaining exchange on similar terms.
In its more diplomatic aspects the action of the Government indicates a disposition to be more reasonable. Recently the Finance Minister spoke to an American bank representative of his desire to avoid the threat of compensation agreements with the United States and Great Britain. Beyond a doubt, this attitude has influenced him to some extent in agreeing to these private deals with the principal holders of blocked funds. Moreover, to my knowledge, American and British nitrate producers have urged upon the Minister the importance of doing something to remove the danger that nitrate shipments to the United States and the United Kingdom may be blocked to take care of the frozen credit situation. My British colleague also informs me that to his formal demand for equality in the matter of foreign exchange, referred to in my despatch No. 1535 of September 6, 1933, the Government has recently replied that it is actively studying the matter and hopes, within the near future, to make a definite proposal to the British Government with a view to affording relief to frozen commercial credits and providing adequate exchange for trading purposes.
While these signs are encouraging, nevertheless, promises and extralegal expedients cannot be counted upon to afford a permanent basis [Page 137] for the settlement of this vexatious problem. The exodus of the funds in question, by relieving some of the pressure for a compensation agreement to repatriate frozen credits, has served to improve the tactical situation and if the process is continued our task with the Government will be made considerably easier. However, we cannot tell if the trend of exchange will remain sufficiently favorable to permit this procedure to continue, and our satisfaction at the cooperation between the Government and American business interests in the question of the transfer of frozen credits must not cause us to lose sight of the importance of a more liberal attitude on Chile’s part in supplying the exchange necessary for the needs of our current commerce. Neither must we overlook the problem of obtaining the transfer of the retirement funds of those individuals, who by force of circumstances, are not in a position to bargain with the Government for the return of the foreign currency due them.