825.5151/170
The Ambassador in Chile (Sevier) to the Secretary of State
[Received March 1.]
Sir: I have the honor to refer to the Department’s telegram No. 21, February 17, 2 p.m., 1934, informing the Embassy that it is prepared to accept for a trial period the proposal made by the Chilean Government to lift exchange control as concerns American commerce. The substance of the Department’s telegram was set forth in a Memorandum, a copy of which is enclosed herewith,4 and left at the Foreign Office to-day. As will be seen, the Memorandum follows closely the wording employed in the telegram except for one or two slight variations.
It was considered essential to change the text of point No. 1 in order to avoid any possibility of an interpretation limiting the scope of the agreement to the remittance of funds to the United States and thus excluding other transactions such as the re-export of consignment merchandise. The Department will recall the tremendous difficulties which the Embassy has had and continues to experience in obtaining the release of such merchandise. Each case has had to be argued separately since the Control Commission has refused to accept the authorization in any one case as the establishment of a precedent. Favorable action has been obtained only by repeatedly bringing pressure through the Foreign Office. It would be a very great benefit to the interested concerns faced with the problem of returning American goods unsaleable in Chile, if it is definitely established that the accord provides for the removal of trade restrictions as well as exchange control.
The phrase “unofficial market” in point No. 2, has been changed to read “other sources of exchange.” This was done for the reason that it was not believed that the Chilean Government would be disposed or could recognize in a formal document the existence of the illegal unofficial or bootleg market. Hence, it was thought desirable to avoid the use of this term in an, international agreement.
Point No. 4 has been amplified in order to make a more specific statement concerning the rate of exchange. The employees who were obliged by law to contribute to the Retirement Fund Bank had the privilege of electing the currency in which their individual retirement funds would be constituted, that is, dollars or pesos, the dollar accounts, however, being penalized by receiving at first a lower rate of interest and subsequently no interest at all. As these funds were contributed at a time when a parity of exchange existed, a specific [Page 13] understanding should be reached, if possible, to provide a satisfactory rate for the repatriation of the peso accounts. It would appear only fair for the Chilean Government to allocate exchange at the official rate for this purpose. Although the total amount involved is relatively small, it may be difficult to obtain from the Chilean Government the full measure of satisfaction desired. In the conversations which the Embassy has had on this point, the Foreign Office has been extremely vague and has indicated very little interest in giving relief to these small and deserving cases.
This afternoon, in the absence of the Minister for Foreign Affairs, I went over the Memorandum with Mr. Ross, the Minister of Hacienda. Mr. Ross expressed himself most emphatically as desiring to give the United States complete satisfaction and to reach an understanding which would place the commercial relations of the two countries on a better basis. He stated that he realized that Chile’s future was bound up with that of the United States and that Europe was not interested in doing anything for Chile and in any event that it was too torn up by its continual bickerings and internal turmoils to give any sympathetic consideration to Chilean affairs. Taking up specifically the points in the Memorandum, Mr. Ross made the following comments:
In regard to point No. 1 he stated that Chile was ready to lift immediately all exchange control restrictions as far as our current trade is concerned. It was also willing to lift the exchange restrictions in regard to frozen credits as had been promised, but in order to work out an orderly process for the transfer of these funds without demoralizing the exchange market, it would be necessary for the Minister of Hacienda to know exactly what amount of money American firms or individuals desired to transfer and approximately over what periods of time. In answer to this point I informed the Minister that the Embassy had this information in its records but would of course have to obtain the consent of the firms involved before supplying it to the Chilean Government.
With reference to the question of discrimination in exchange rates as between the United States and countries having compensation agreements, the Minister stated that a decree had been drafted and would be promulgated to-day or to-morrow, definitely fixing the rate of exchange for all countries at the daily commercial rate of exchange based on the pound or the dollar. (This of course would not refer to the rate on frozen credits provided for in compensation agreements). He added that this would definitely preclude any discrimination as concerns current trade.
With regard to point No. 2, the Minister stated there was no difficulty; that nations which had forced compensation agreements on Chile would be held strictly within the limitations of those agreements.
[Page 14]In discussing point No. 3, Mr. Ross stated that there was no objection as far as he could see to a private proposal being subsequently worked out.
Point No. 4, with regard to the payment of American citizens holding retirement funds seemed to present virtually the only real difficulty in the entire proposal. Mr. Ross stated that the Chilean Government was not in a position to repay all of the dollar accounts in their full value in dollars; that the Government would be prepared to repay dollar for dollar the holders of these accounts who had left Chile or depositors who planned to leave Chile immediately upon the withdrawal of their accounts. On the other hand, he felt that because of the great difference of purchasing power of the dollar in Chile and abroad, depositors who were domiciled in Chile should accept a settlement on a lower basis.
With regard to the peso accounts he stated that the Chilean Government would not be prepared to pay these at the old par value but that some arrangement for what he termed a fair rate of exchange would be worked out for the holders of peso accounts who were now living abroad or who would immediately leave the country upon payment of these accounts.
In reply to the Minister’s comments on this question I stated that I would of course transmit his proposal to Washington where it would be given sympathetic consideration but that as I knew that the American Government was very interested in these very worthy cases, I could give no assurance that it would be acceptable.
With regard to supplying the Embassy with monthly statistics on exchange matters, the Minister said that the Chilean Government would be perfectly willing to supply all the information which it could on this question. He pointed out, however, that the form in which the Government received its information from the Customshouse and other sources did not lend itself to breaking down into the statistics which we desired. For example, in the case of nitrate, the export statistics received by the Government would indicate on their face exchange created more or less equal to the value of nitrate sold whereas in actual fact, a large part of the proceeds of such sales was used in payment of financing costs and other charges against the industry and did not come back to Chile in the form of free exchange. A somewhat similar situation also existed in regard to the copper companies.
In conclusion the Minister again assured me of the very earnest desire of Chile to give satisfaction to the United States Government. In this connection he stressed the fact that Chile appreciated deeply the treatment which it was receiving at the hands of the American Government in allowing it to sell its products freely in our markets [Page 15] and that for this very reason it was most anxious that the United States should not obtain the impression that its commerce with Chile could be stimulated by adopting the bullying tactics of the European countries. He added that he felt that the United States had every advantage by accepting a proposal along the lines of the Chilean offer since, when world business increased, American commerce would be in a position immediately to benefit by this change, whereas countries with compensation agreements would be held by Chile strictly within those agreements. The Minister promised that the Chilean Government would reply point by point to the Memorandum which had been submitted.
As a result of my interview I feel encouraged that we will be able to obtain from the Chilean Government an accord on exchange facilities substantially in conformity with the Department’s desires. As the form of any agreement which may be entered into has not been discussed with the Chilean Government the Department’s instructions or suggestions on this point would be helpful. It is presumed that the simplest and most satisfactory form would be through an exchange of notes.
Respectfully yours,
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