825.6374/1114: Telegram
The Ambassador in Chile (Culbertson) to the Secretary of State
[Received 9:25 p.m.]
46. Reference Department’s telegram No. 11, February 2, 1 p.m., and Department’s instruction No. 1463, February 10. The Minister [Page 163] of Finance yesterday afternoon instructed customs authorities to resume collection of export duties on nitrate and iodine under law 980 of 1897, disregarding provisions of decree law number 12 (despatch No. 794, March 6, 193153). Thus the Government without warning and without consulting the private interests affected has suspended indefinitely the service on the entire bond issue serviced by the 60 peso charge and at the same time by means of the restoration of the export tax has diverted the service of these bonds from the creditors to the treasury of the Chilean Government.
It will be immediately evident that this act of the Minister of Finance is … a violation of the friendly agreement arranged by this Embassy between the Government and the private interests whereby action against the 60 peso charge was to be held in abeyance and an effort was to be made to work out a complete and cooperative plan of liquidation and reorganization of the industry.
The background of this action by the Minister of Finance is his trouble with the 1933 budget now pending in Congress. The Minister has proposed various forms of taxation and economies, all of which have met with vigorous opposition. The condition of Government finances is desperate. Apparently the Minister has despaired of overcoming internal opposition to his financial program and has seized upon the restoration of the export tax, accompanied by the virtual repudiation of the 60 peso charge, to help the budget.
… There appears no legal or moral basis on which the Government can sustain its action in repudiating said decree law both because it has received funds which private interests paid it in faith of the provisions of that law and moreover because it was expressly recognized by Congress. See in particular enclosure number 6 despatch No. 1373 of February 1st and enclosure number 6 despatch No. 1377 of February 8th.54
Although the Government considers Cosach dissolved by decree number 1, the subsidiary companies are entitled to exemption from payment of export tax under article IV of decree law number 12 and the orders of yesterday are therefore contrary to existing Chilean law.
The action of the Government in this matter is a direct challenge. The trustees will file a protest and are considering the possibility of attaching Chilean nitrate as it passes through the Panama Canal. The liquidator appointed by the “B” shares will withhold participation. Whelpley has filed a strong protest. Both the British and German Governments are considering diplomatic representations and, although I am reluctant to give up the policy of friendly cooperation which we have applied thus far, the action of the Minister of Finance leaves us no alternative but to consider seriously the form which formal [Page 164] representations by the American Government should take. I have talked with the Minister for Foreign Affairs. He was depressed but promised a memorandum which I hope may be available tonight. He has been working to find a solution but unless his proposal reaches the essential difficulty, I believe that we should request that the orders issued yesterday be rescinded. Indeed no other solution of the difficulty seems available. These orders make impossible further cooperation both because they have destroyed confidence in the Government and because they take for the Government benefits which under Chilean and international law the trustees are obligated to pay to the bondholders. Once the status quo ante is restored the process of liquidation by compromise and cooperation can continue. A general protest may be effective but I would prefer authorization to insist upon the withdrawal of the orders which have no legal justification even in Chilean law.