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

No. 192

Sir: Adverting to the Department’s Instruction No. 69 of March 26, 1936, with which was enclosed the draft of a note embodying the text of a proposed modus vivendi to replace that of September 28, 1931, 1 have the honor to report that I handed this note, with very slight modifications, to the Chilean Under Secretary for Foreign Affairs on the 24th instant.

I had delayed this action in the hope of being able to discuss the matter personally with the Minister of Foreign Affairs on the occasion, as I consider that the headway which hitherto has been made toward a solution of the pending exchange difficulties has been most largely due to his support of the promises made to me by Señor Ross.19 Señor Cruchaga’s illness has rendered such a course impossible for the present, but I will seek the first opportunity to take the matter up with him again.

The proposed modus vivendi as drawn up by the Department seems most admirably suited to our requirements.

Señor Vergara read through the text in my presence, and with the exception of paragraph four, seemed to think that it will prove acceptable to his Government. With regard to the paragraph four, he remarked that he quite understood my assurance that our Government is not seeking any special concessions respecting the removal of exchange restrictions but that the subject is fraught with much danger for Chile. For this reason he said he surmised that his Government may desire to propose some changes in the text of that paragraph.

In the course of the conversation, Señor Vergara mentioned the great embarrassment experienced by his Government owing to the lack of exchange to facilitate Chile’s foreign trade. He expressed a fear that such removal of restrictions as has already taken place may have the effect of depreciating the peso to an extent which may prove most disadvantageous to foreign exporters to Chile as well as to the Chilean people.

I called attention to the fact that the Government has found it necessary to earmark for purposes related to its clearing agreements with certain foreign countries a large part of its available exchange and that it seemed only just that it should not discriminate against [Page 323] countries without such agreements by placing restrictions on that which remained. In reply, the Under Secretary informed me that his Government, in addition to its formal compensation agreements, was further committed from time to time by informal clearing arrangements with certain other countries which oblige it to augment its exchange requirements. I asked if these clearing arrangements were confirmed by exchange of notes or in other official manner and was given to understand that they were not. I will endeavor to ascertain more complete details regarding the exchange commitments of the Chilean Government with a view to a further report to the Department.

It is known that negotiations, for instance, are being carried on with Argentina and Japan for additional clearing arrangements, and it may well be that in order to facilitate proposed interchanges of commodities with these and other countries the Chilean Government requires available exchange facilities—the amount of which is not generally known.

I have been unable as yet to procure data as to whether conversations are being carried on by the British Embassy with the Foreign Office regarding the nature of possible provisions on the question of exchange, for inclusion in a commercial agreement.

I beg to report that I have this moment been informed by the British Ambassador, over the telephone, that he has received letters today, the 25th instant, from Señor Guillermo Valenzuela, Under Secretary of Hacienda, and Señor Rafael Urrejola, Chief of the Board of Exchange Control, that the regulation which calls for the presentation of documents covering imports prior to the granting of exchange has been definitely rescinded.

I may say that I had been informed by Señor Vergara yesterday that the Minister of Foreign Affairs had addressed a strong note to Señor Urrejola three days previously. I understood that in his note the Minister insisted that the removal of the restriction mentioned be effected at once.

While it may be too much to hope that the lifting of the exchange restrictions will bring about a lasting amelioration of the situation, it is at least satisfactory that the promises made by Señor Ross prior to his departure seem to have been fulfilled at last.

Respectfully yours,

Hoffman Philip
  1. Gustavo Ross Santa María, Chilean Minister for Finance.