825.5151/174: Telegram

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

33. Referring to my despatch No. 54, February 21st, the text of the Foreign Office reply air mailed today.7 The following summarizes point by point:

1. Chile will remove as soon as it may be possible existing restrictions on remittances and other transactions with the United States, [Page 17] will grant free access to the export draft market and perceives no objection to the use of new sources of exchange for American commerce. (The Under Secretary explained orally that no mention had been made of the unofficial market since it is believed that it will cease to exist when the free market opens.) In order to prevent discrimination in exchange rates on current business, blocked credits for new business under compensation treaties must be sold with a surcharge of 250 per cent over the official rate thus making these rates virtually equivalent to the export draft rate. The surcharge will be modified as exchange conditions vary. The Government will make every effort to maintain this equivalency but it points out that the moneys withheld under compensation treaties are the property of private individuals and that they, in order to liquidate those credits in the event of an exchange supply, might agree privately to transactions at rates lower than those fixed by the Government. The Government admits its inability to control such transactions.

2. Agreed. Exception made that the purchase can be authorized if the current business blockage is exhausted and it involves a specific article unobtainable elsewhere.

3. Insists upon making it clear that the Chilean Government has no objection whatsoever to concluding an agreement with the United States absolutely and entirely similar in character to the German agreement and that in signing that agreement it was its intention to accord equal treatment to other countries. But if the United States prefers free commercial interchange without restriction or control, Chile is not in a position to grant in addition a fixed rate of exchange for the liquidation of blocked credits. That commitment of this nature would constitute a discrimination against the countries having compensation agreements. That to authorize free unblocking and to fix at the same time a rate therefor would be to accord a privilege which it is not in a position to grant and which it has not granted to any other country.

4. The Government will undertake to obtain from the Caja8 the return of the dollar funds and the transfer of the peso funds at the export draft rate. It holds that since peso funds were invested under equal conditions with those of other foreigners and Chileans, it is not in a position nor would it be equitable to authorize their transfer at the official rate.

The Control Commission has been instructed to be prepared to furnish the statistical data requested.

The reply concludes with the explanation that only a very small part of the value of Chile’s principal exports is available to the country and that from the export of nitrate and copper only the cost of production, representing a very small percentage of the value of the products exported, remains in Chile.

The Under Secretary states that no decision has been taken as yet as to the manner of making effective the facilities which would be granted although he believes that it would be by virtue of a law.

The assurances regarding the maintenance of equivalency in exchange rates on new business are insufficient and unsatisfactory. [Page 18] While the Government is unable to control exchange rates in the smaller transactions, the bulk of the blockages arises from nitrate sales and since the Government exercises complete supervision over that industry it is in a position to guarantee that at least none of these transactions will be effected at a discriminatory rate.

The position taken with respect to point 3 is unacceptable since it tends to preclude the conclusion of a private agreement for the liquidation of frozen credits.

I cannot help but feel that the Minister of Finance believes that he can manipulate exchange to suit Chile’s conveniences and that by negotiating separately with the individual creditors he will get for Chile, at the expense of these creditors, appreciable advantages which could not be obtained through a new private agreement. The local representatives of American companies are distrustful of his motives. In this connection I desire to recommend careful consideration of the Embassy’s despatch No. 69, due Washington Wednesday, which discusses the desirability of negotiating, simultaneously with the general agreement for exchange facilities, a private arrangement for the liquidation of frozen credits.

  1. Text of Foreign Office reply not printed.
  2. Caja de Previsión de Empleados Particulares.