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

No. 152

Sir: I have the honor to refer to point 4 on page 8 of this Embassy’s despatch No. 77 of March 28, 1934, despatch No. 79 of the same date18 and previous correspondence concerning the repayment of retirement [Page 33] funds of American citizens deposited in the Caja de Previsión de Empleados Particulares. I now have the honor to report that under date of May 30, 1934, that Institution informed its depositors holding accounts in sterling of American gold that in exercise of the authority conferred upon it by Article 13 of Law No. 5107 of April 19, 1932,19 it had converted their deposits into pesos on May 18, 1934, at the rate of exchange, namely 9.60 pesos to the dollar, fixed by the Central Bank of Chile on that day. In view of this arbitrary and unilateral action by the Caja and the fact that this question has been and still is the subject of diplomatic negotiations with the Chilean Government, it was deemed necessary to request the Foreign Office to rescind the action taken by the Caja pending such time as the two governments might reach an agreement. A copy of my note is transmitted herewith.

The Department will observe that the request of the Embassy for the rescission of the measures taken by the Caja to convert these funds without the consent of the depositors is based exclusively on the fact that the question is still the subject of diplomatic negotiations between the two governments. In view of this fact it did not seem wise to complicate the negotiations at this time by entering into a technical discussion of the legal features involved. For the Department’s information it may be well, however, to review this phase of the subject. The pertinent Chilean legislation on this question is found in Article 13 of Law No. 5107 of April 19, 1932. In this Embassy’s note to the Foreign Office of April 11, 1932 (Enclosure No. 1, Despatch 1141, April 13, 1932)20 the following reference was made to the article referred to above:


“Article 13 converts the deposits in foreign money of the Caja de Previsión de Empleados Particulares into Chilean pesos. Many Americans employed in Chile have been required by law to deposit a percentage of their salary in the Caja and some of them have accepted a lower rate of interest in order to have their deposits in foreign currency. For them, therefore, the conversion of these deposits into Chilean pesos is a real hardship, especially in the cases of persons who have left the country.”

The foregoing observations were made to the Foreign Office when Law No. 5107 was approved by the Chilean Congress but had not yet been signed by the President. In view of the representations on this point and because of other objectionable features in the proposed law, it was vetoed by the President and returned to Congress (see Enclosure No. 1, Despatch 1144, April 20, 1932).21 With reference [Page 34] to Article 13 the President suggested that a paragraph be added which would take into account the situation of foreign employees who had left the country or who for any other reasons preferred to maintain their deposits in the currency in which they had been made. The proposed paragraph was as follows:

“The deposits of foreign employees who do not wish to accept the operations authorized in the preceding paragraph shall not be included in those operations.”

The Senate in rejecting this proposed amendment (see Enclosure No. 3, Despatch No. 1144 of April 20, 1932) states:

“… Furthermore, it is pertinent to recall that the conversion referred to in Article 13 is an authorization which is conferred upon the Caja de Previsión de Empleados Particulares so that this institution may, without any hindrance whatsoever (sin inconveniente alguno) exclude from the operation the deposits of the foreign employees to which the Executive refers without the necessity of expressly contemplating this idea in the law…”

After overriding the President’s veto with respect to the provision of the bill the then Minister of Hacienda published a statement which reads in part as follows:

“… The second modification (of the President’s veto message) refers to foreign employees who have deposited savings in gold at the Caja de Previsión de Empleados Particulares and who, by reason of their having left the country or for any other reason whatsoever, might not find it advantageous to have their deposits converted into local currency. The Senate considers that the exception which the Executive proposed is not necessary and, if it can be achieved without modifying the law, so much the better.…”

It will be observed from the foregoing that in 1932 when the monetary bill was first passed by the Chilean Congress, both the Embassy and the Chilean Executive considered that Article 13 as worded could be interpreted as conferring upon the Caja authority to make the conversions with or without the consent of the depositors affected; that in order to dispel any such interpretation the Executive attempted to have the law modified in such a manner as to indicate clearly that the contemplated operation could be effected only with the consent of the interested depositors; and that from the statements made by the Senate and by the then Minister of Hacienda, Article 13 as originally drafted and subsequently passed by the Congress, was apparently intended to grant authority to the Caja to make the conversion only with the consent of the depositors concerned.

This question has been discussed with a prominent Chilean attorney who holds that the deposits of American citizens in dollars with the Caja de Previsión de Empleados Particulares is a bilateral contract. [Page 35] From this it follows in his opinion that while Article 13 of Law 5107 confers upon the Caja authority to convert such deposits into local currency with the surcharge corresponding to the date on which such conversion is made, the operation itself can be effected only if the depositor consents to the conversion inasmuch as bilateral contracts under Chilean law can be modified only with the agreement of both parties.

Until May 30, 1934, the authority to convert the foreign currency funds had never been availed of. In discussing the problem of the repayment of these funds reference has been made to the authorization contained in the Law and at times there has been a veiled threat that the Caja might carry the provision into effect. On these occasions the attention of the authorities has been invited to the history of the legislation in question from which it would appear to be clearly indicated that the intent of Congress as well as of the Executive at that time was that depositors could not be forced to accept conversions but that such conversions could be made by the Caja with the consent of the depositors.

During the course of the negotiations for an exchange agreement ways and means of effecting such payment have been discussed but at no time did the authorities suggest that the Caja might exercise unilaterally the authority conferred upon it by Article 13 of Law No. 5107. The determination of the Caja as set forth in the copy of its circular enclosed herewith22 comes, therefore, as a complete surprise and it is the belief of the Embassy that the action was taken without consultation with the Ministry of Foreign Affairs. However, on the other hand, it is obvious that the measure has the approval of Mr. Ross, the Minister of Hacienda, since he is ex officio the President of that institution.

As the Department is aware the Embassy has always felt that the treatment accorded American depositors in the Caja de Previsión de Empleados Particulares has been clearly unjust and that these worthy cases should have the full support of the American Government. It is the Embassy’s understanding that the Department fully concurs in this view. The Embassy proposes, therefore, to continue to impress the Foreign Office with the position which has been taken that a satisfactory solution of this question must form an integral part of any general agreement which may be entered into concerning American trade and interests in Chile.

Respectfully yours,

For the Ambassador:
Robert M. Scotten

Counselor of Embassy
[Page 36]

The American Ambassador (Sevier) to the Chilean Minister for Foreign Affairs (Cruchaga)

No. 118

Excellency: I have the honor to inform Your Excellency that I am in receipt of a communication from an American citizen, protesting against the recent action taken by the Caja de Previsión de Empleados Particulares in informing depositors having dollar accounts with that institution that on May 18, 1934, it had converted their deposits into pesos at a rate of 9.60 pesos to the dollar. A copy of the circular issued by the Caja is enclosed.

While it does not appear necessary at this time to enter into a technical discussion of the legal aspects of this unilateral and arbitrary action by the Caja in a matter involving bilateral obligations and rights, I do desire to remind Your Excellency that a satisfactory solution of the problem of American citizens who are depositors in the Caja de Previsión de Empleados Particulares has always formed an integral part of the negotiations which are being carried on between the Government of the United States and the Government of Chile in connection with an exchange agreement.

As Your Excellency will recall it has always been made clear in all our discussions that the American Government considers that any satisfactory agreement concerning American commerce and interests in Chile should include an understanding providing for an effective repayment of the retirement accounts held by American depositors in the Caja de Previsión de Empleados Particulares, such an understanding either to be embodied in the text of an agreement or arrived at by means of separate exchange of notes at the time of reaching a general agreement. That the Chilean Government, being aware of the special interest which this matter holds for the American Government, has been willing to consider negotiations concerning the Caja as an integral part of the general negotiations on exchange matters, is clearly evidenced by the fact that from the earliest stages of the negotiations the question of the Caja has been included in all the conversations which have taken place. This question it will be remembered was the subject of a special paragraph in the Memorandum of January 3, 1934,23 which was accepted by Your Excellency as setting forth in general terms the proposal of the Chilean Government in regard to an exchange agreement. This paragraph reads as follows: [Page 37]

“In view of the nature of the retirement funds of Americans deposited in the Caja de Previsión de Empleados Particulares the repayment of these funds would be subject to special treatment.”

Furthermore, Your Excellency will recall that as result of numerous exchanges of views a Memorandum was drawn up on March 27, 1934,24 which was accepted in principle by Your Excellency’s Government as providing an acceptable basis for an exchange agreement. This Memorandum contained the following provision relative to the question of funds in the Caja de Previsión de Empleados Particulares:

“4. With regard to Americans having dollar deposits in the Caja de Previsión de Empleados Particulares, the Chilean Government agrees to repay such depositors in dollars when payments to them become due. Furthermore, the Government agrees to repay in dollars at the official rate of exchange the American holders of peso accounts residing outside of Chile.”

As negotiations looking toward a solution of the question of the repayment of the funds owing American depositors in the Caja de Previsión de Empleados Particulares are still being carried on between the two Governments, I can only conclude that the unilateral action of the Caja to which I have reference was taken without consultation with Your Excellency. I have the honor, therefore, to request that Your Excellency be good enough to insure that the action taken by the Caja in converting the funds of American citizens at a rate of exchange lower than the recognized commercial rate, be rescinded pending such time as an agreement shall have been reached between the two Governments on this subject.

Hal Sevier
  1. Letter not printed.
  2. Diario Oficial de la República de Chile, April 19, 1932, pp. 986, 987.
  3. Not printed.
  4. Despatch and its enclosures not printed.
  5. Not printed.
  6. See telegram No. 1, January 5, 1934, 6 p.m., from the Ambassador in Chile, p. 1.
  7. Ante, p. 24.