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

No. 18

Sir: I have the honor to refer to my Despatch No. 9 of December 2nd34 and subsequent telegrams on the subject of foreign exchange for American commerce, and to report the developments which have taken place.

Since no action was taken on the formal note which I left with the Foreign Office on December 1st, Mr. Scott35 called on the Under Secretary on December 9th in order to keep negotiations active and to expedite the interview with the Acting Minister for Foreign Affairs. A memorandum of the conversation which took place at the Foreign Office is enclosed.34 It will be noted that Mr. Vergara’s attitude appeared unresponsive and that he held out little hope that his Government would seriously consider working out a plan within the lines suggested which would be acceptable. As the months of discussion with the Chilean Government produced no positive attitude on its part other than to offer the same type of compensation treaty which Chile knows is repugnant to the United States, I felt that the point had virtually been reached where it would be desirable to make the strong representations which the Department contemplated as a possibility in the suggestions and authorizations embodied in the last two paragraphs of Instruction No. 1550, November 1, 1933.

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Because of Chilean holidays and the reception to the Diplomatic Corps which I gave on Monday, December 11th the next few days did not offer an appropriate opportunity for discussions. However, on December 15th, during the course of a call which was made on Mr. Vergara in connection with certain matters relating to the Montevideo Conference,37 the Under Secretary, of his own volition, raised the question of our exchange problems and requested Mr. Scott to talk over the matter immediately with Mr. Ross, the Acting Minister for Foreign Affairs. A memorandum of the conversation is enclosed.38 This interview indicated, for the first time, a less negative attitude on the part of the Chilean Government and an interest in asking definite questions as to our problems of frozen credits and current commerce. Moreover, a desire was evidenced to try to work out something within the lines contemplated in our proposal which would be the basis, at least, for affording some satisfaction on the question of exchange. As in former discussions, stress was laid on the difficulty of freeing any exchange for commerce at a rate lower than the free market rate without obtaining such exchange by blocking a definite amount of Chilean exports to the United States. When it was again pointed out that our Government was opposed to a compensatory system, which did not conform with our foreign commercial policy, Mr. Ross did not counter that nothing could be worked out on other lines but asked for certain details concerning the amounts of our frozen credits and the general balance of trade between Chile and the United States.

The next day Mr. Scott, accompanied by Mr. Bohan, had another interview with Mr. Vergara and left revised estimates of the amount of American frozen credits in Chile and a statement of the balance of trade for the year 1932 and the first nine months of 1933 (Reference Department’s telegram No. 52, December 4, 6 p.m., 193338). It was explained to Mr. Vergara that possibly estimates of American frozen credits may be high since considerable sums recently have been released through purchases of export drafts at the free market rate, which transactions although in a sense extra-legal, had been countenanced by the Chilean Government. The Department will recall that the estimates made in April, 1933, by Mr. Ackerman, the former Commercial Attaché, indicated that frozen credits were about $20,000,000. Since that time perhaps $3,000,000 has been repatriated. On the other hand certain items of frozen credits have accrued during those months so that the present estimated total of $19,200,000, although probably a little high, is not inconsistent with the study prepared by Mr. Ackerman.

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After discounting the difficulties of obtaining a satisfactory arrangement and the probability that anything which may be offered will fall far short of what we would like to have, it is felt that Chile now realizes its responsibilities and that progress has been made. One helpful factor has been that the British are actively negotiating for an arrangement to afford them fair treatment on exchange, following out a basis somewhat similar to ours, that is, they are opposed to a formal compensation arrangement but are seeking definite guarantees that the Chilean Government will allow the repatriation of British funds at a reasonably favorable rate. Their plan apparently contemplates not pressing for exchange on as favorable a basis as the very preferential rate created by blocked nitrate sales in France which, as the Department will remember, is based on a figure of 65 pesos per hundred francs, or roughly 11 pesos to the dollar. They, however, hope to get exchange freed on an average rate between this special rate and the rates obtaining in the free market. The British are trying also to embody in their understanding some provision which will facilitate payment in pesos for their Chilean debtors and which also will have the effect of exerting some pressure on them to make these peso payments. It is difficult to see just how the last feature can be woven into an international arrangement but perhaps some simple declaration on the part of the Chilean Government can be used to accomplish this purpose. The British Commercial Attaché estimates that England still has about 1,000,000 Pounds of frozen credits in Chile.

The Under Secretary has stated that during the weekend he will go over with the Chilean Commercial Adviser the figures which the Embassy supplied him and that he will arrange to discuss the question with us during the first part of next week. I feel that our policy must be one of continually pressing the Chilean Government, making it keenly conscious of our consistent and earnest interest in the matter, and I am hopeful that we will obtain some definite suggestion from the Foreign Office during the next few days.

Respectfully yours,

Hal Sevier
  1. Not printed.
  2. Winthrop R. Scott, Second Secretary of Embassy.
  3. Not printed.
  4. For correspondence concerning the Seventh International Conference of American States, held at Montevideo, December 3–26, 1933, see vol. iv, pp. 1 ff.
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  6. Not printed.