825.5151/133: Telegram

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

4. Department’s telegram No. 10, January 11, 6 p.m. The principle of the proposal is to remove as concerns American interests all exchange control and restriction, thus establishing reciprocal treatment concerning exchange. In other words, the Chilean Government would undertake unequivocally to do away with all exchange control as far as American interests are concerned placing our commerce virtually on the same basis as it was prior to the establishment of exchange control in 1931.

In addition to the advantages set forth in your paragraph 2 there should be added the following which have been confirmed in conversations with the Foreign Office:

The abolishment as concerns American interests of the Exchange Control Commission whose pernicious influence upon Chile-American trade and relations is only too well known to the Department. The exchange requirements of American interests would be subject not to any arbitrary allocation of the present commission but would be obtained for any purpose in the export draft and bootleg markets limited only by the economic law of supply and demand.
The legalizing for our commerce of the favorable de facto situation regarding export drafts. At present purchases of these drafts for imports are authorized in unlimited amounts because of an excess supply. This, however, is merely countenanced as a matter of Government convenience and can be restricted at any time.
The legalizing of the transfer of frozen credits. While at present a few big interests have been able to repatriate funds in the export draft market through special confidential and extra legal arrangements with the Government, many concerns and particularly the smaller ones have hesitated to do so fearing subsequent prosecution.
Transfers of frozen funds at the current commercial rates without the premium of about 15 per cent now paid the Government on such transactions.
Most important is the restoration of Chile-American economic relations to a free basis by the removal of the artificial trade barrier of exchange control and restriction.

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Your paragraph 3. The Embassy is uncertain whether the Department’s apparent reluctance to express its position in regard to the principle of exchange liberalization involved in the Chilean proposal is because of certain considerations of general policy extraneous to Chile or because it was not satisfied as to the full scope of the proposal. I believe that the Chilean Government is disposed to give us, in working out the details, the formal assurances which we may require to put the arrangement successfully in operation but I feel we should decide now whether the general principle involved is acceptable before asking the Chilean Government to elaborate details.

The Chilean Government made subsequently a similar proposal to the British, and the Embassy has recommended its acceptance stating that “the proposal offers a practical basis for a solution to our exchange problems in Chile”. The British Foreign Office is now considering the proposal.