Foreign Relations of the United States Diplomatic Papers, 1934, The American Republics, Volume IV

835.5151/361

The Ambassador in Argentina (Weddell) to the Secretary of State

No. 380

Buenos Aires, August 13, 1934.
[Received September 7.]

Sir: I have the honor to acknowledge the receipt of the Department’s confidential instruction No. 117 of July 28, 1934, containing a series of questions with respect to Argentine blocked peso accounts held by Americans, regarding which the Department wished the Embassy to consult with Dr. John H. Williams during his visit to Buenos Aires. As this instruction reached here on August 5, the day after Dr. Williams’ departure for Santiago, the Embassy communicated the questions raised therein to him through the American Embassy in Santiago, and now encloses a copy of Dr. Williams’ report dated August 10, 1934, in reply.

It will be noted that in his covering letter to the Embassy¹³ Dr. Williams states that he expects to be in Washington on or about August 30 at which time he will discuss the question of blocked peso accounts in Argentina with the Department.

As the Department has already been informed through confidential report dated August 10, 1934, entitled “Argentine Foreign Exchange Situation”, of the American Consulate General, as well as through confidential report No. 311–C, dated August 10, 1934, from the Assistant Trade Commissioner in Buenos Aires,¹⁴ the question of blocked peso accounts has been radically affected by the marked appreciation of the peso during the past few weeks. On Friday, August 10, the exchange rate in the free market was quoted as low as 3.50 Argentine pesos to the dollar, with a spread only of roughly ten centavos between the free rate and the official rate. As pointed out in the report from the Consulate General under reference, this difference is so small that no great loss is suffered by the holder of blocked funds awaiting official permits if he should purchase in the free market at recent prevailing rates.

While it seems highly desirable that the American Government should extend all reasonable assistance and cooperation to American holders of blocked funds in foreign countries, it is felt that the change in the exchange situation in this country described above may relieve the Government from taking action with regard to peso balances now | blocked in Argentina. In this connection it is known that numerous holders of blocked balances have during the past two weeks liquidated their accounts and with the continuation of the prevailing rates in the free market it is a fair assumption that the bulk of the holders of blocked accounts will take advantage of the situation and clear up their outstanding deposits awaiting transfer. American banks informed the Embassy this morning that according to rough estimates thirty per cent, of their blocked balances have been liquidated in the last two weeks, and that liquidation shows a progressive volume. It would appear accordingly that the question of a bond issue for balances now blocked has diminished in importance, since it is apparent that conversion at the free market rates prevailing at this time is more favorable than the terms of the proposed bond issue.

Representatives of the United States Government in Argentina are endeavoring wherever possible to assist individuals or private organizations in this matter. As already reported, the American Chamber of Commerce formed an Exchange Committee to collaborate with Dr. Williams during his visit here; this Committee gave Dr. Williams valuable assistance on the subject of blocked funds, and I have expressed the hope that I may be able to call upon its members for further assistance should the occasion arise.

If the situation should change, and it is found that United States Government agencies should be able to assist in financial operations of this type, it is suggested that they might explore the position of the holders of the fifteen-year Treasury bonds issued in 1933 which have no ready market. However, I believe the opinion must be advanced that the holders of these bonds accepted the Argentine obligation voluntarily, and, in effect, were utilized by the Argentine Ministry of Finance to carry out a program of primary interest to this country rather than to the United States. Any action taken by the American governmental agencies or semi-official banks to grant relief to these bondholders, it is suggested, might establish a basis of encouragement to the Argentine Ministry of Finance to repeat this operation if at some future time the exchange problem of this country is again under pressure.

It is believed the best interest of the United States will be served by a constructive, general policy to be applied to all Latin America for the encouragement of the ultimate release of exchange quotas on any bi-lateral basis. A policy of encouragement based on the general situation in Latin America with appropriate evaluation of the efforts made in separate countries to fight the depression and strengthen their financial position will give the soundest advantage to American trade in this continent.

The alternative to a general American policy of constructive assistance is a strict bargaining that cannot help arousing resentment where the United States holds a favorable balance of exchange and will undoubtedly restrict further such consideration as is now given to American importers where our exchange position is unfavorable, as in Argentina and Uruguay, on the basis of a possible future treatment measured by American imports of Argentine agriculture and meat products.

The Consul General has collaborated in the preparation of this despatch, and the foregoing represent our joint conclusions.

Respectf ully yours,

Alexander W. Weddell

[Enclosure]

Report by the Special Representative of the Department of State (Williams)

[Santiago, August 10, 1934.]

In reply to the Ambassador’s inquiry, based on an instruction from the State Department and transmitted by telephone this morning, my report of August 3 handed to the Ambassador contains our views in general on the blocked pesos question. Our investigation in Buenos Aires brought out that the blocked funds situation does not now constitute a pressing problem. The amount pertaining to American interests, placed by Gagneux at 25 million pesos, has been diminishing as exchange has become available in the free market. The latter has been greatly expanded in recent months. The results of an inquiry recently conducted by the American Chamber of Commerce in Buenos Aires and received just prior to our departure, indicates that American firms in Argentina, omitting public utilities, are obtaining approximately 75 per cent, of their dollar exchange in the free market. New accumulations would not seem to be a factor since under the prior import system effective at the beginning of the year, importers are advised in advance whether official exchange will be available to them. In other words, American business interests in Argentina for the most part appear to have adjusted their current operations to meet the existing exchange situation.

The substantial improvement in the external position of Argentina during the past few months has an important bearing on the question of blocked pesos. The probabilities are that if the recovery continues, the spread in rates will narrow as it has already begun to do, the free market will be further expanded and the amount of blocked pesos will dwindle.

Referring to the specific questions brought forward, Numbers 1, 2, 3, 4 it is felt that the Department and its representatives in Argentina should, of course, assist and cooperate with individuals or private concerns but since the Argentine Government has established as definite policies both the maximum amount of current exchange which it will furnish to American commercial interests and the terms upon which it will fund blocked pesos, I should not expect that treatment accorded us on either current or past due trade account could be bettered by negotiation whether conducted by State Department representatives or by American concerns acting alone.

Numbers 5, 6. Both the American interests and the Argentine Government recognize the desirability of clearing up the blocked accounts by a funding operation rather than by waiting for them to be liquidated gradually through current availabilities. The Argentine Government has made a definite offer, similar in all important respects to that made to the Italians (five year two per cent. Treasury dollar bonds), which it is my impression will not be substantially modified. If accepted, the detailed arrangements could presumably be handled by a representative body such as the Chamber of Commerce.

Number 7. It is extremely doubtful whether the obligations which would be offered by the Argentine Government in exchange for blocked peso balances could be discounted or otherwise negotiated through the private commercial banks in the United States in such a way as to enable the owners to realize a large percentage in cash, because there is no market in our country for this type of paper. Therefore, acceptance of the offer really hinges on whether our Government, through either the Reconstruction Finance Corporation or the Export Import Bank, decides that it is feasible to make a market for the bonds.

Numbers 8, 9, and 13, bring in pertinent aspects of the case which the Government banking institution concerned would have to analyze in the light of its own policy. That a blocked funds problem, of course, is found in all the countries which we have visited would be one of the factors for consideration. With respect to the Brazilian desire to secure a dollar loan, the fact of a decision to grant facilities through official channels, to American holders of blocked funds bonds or notes would not establish a precedent or basis for a loan, directly or indirectly, from our Government to the Brazilian Government.

With respect to possible concessions to the United States (Question 12), in exchange for our Government’s making these bonds acceptable to owners of blocked pesos, the Argentine Government might be likely to take the stand that the problem is purely American and that, therefore, it can discern no particular basis for granting concessions to us.

John H. Williams

13. Not printed.
14. Neither found in Department files.