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

No. 197

Sir: I have the honor to refer to the report of the Commercial Attaché entitled “Economic and Trade Notes No. 369” of April 21, 1936, in which was set forth the present confusion existing as regards the exchange situation, especially as regards the importation of merchandise from the United States, as well as “Economic and Trade Notes No. 381” of April 28th.33 I have the honor to refer furthermore to my despatch No. 192 of April 25th in which I informed the Department of the receipt by the British Ambassador of assurances both from the Under Secretary of Finance and from the Chief of the Board of the Exchange Control that exchange restrictions had been definitely rescinded.

For the information of the Department regarding the most recent developments in the Embassy’s endeavors to settle this matter, there is enclosed a copy and translation of a letter dated April 24th from Sr. Guillermo Valenzuela, the Under Secretary of the Ministry of Finance, to the Counsellor of the Embassy, together with a copy and translation of the latter’s reply dated April 27th.

The occasion for Sr. Valenzuela’s letter was the fact that in a conversation between Mr. Scotten34 and Sr. Vergara, the Under Secretary of the Ministry for Foreign Affairs, at the close of a luncheon at the [Page 334] Union Club in honor of Mr. John L. Merrill35 on April 20th, Sr. Vergara stated categorically that since April first all exchange restrictions on the importation of American merchandise had been removed. Mr. Scotten replied that unfortunately, according to information received from American merchants as well as from the National City Bank, this would not appear to be the case.

Sr. Vergara thereupon called Sr. Valenzuela, who was also present at the luncheon, and asked him if it was not true that since April first the restrictions in question had been removed. Sr. Valenzuela replied that this was entirely true.

Mr. Scotten thereupon called the Manager of the National City Bank, who was also present, and asked him to explain to Sr. Valenzuela exactly what the situation was. Mr. Willett, the Manager of the Bank, informed Sr. Valenzuela that it was the custom of the Bank, before sending to the Exchange Control Commission a written request for exchange which had been applied for by a merchant, to telephone the Exchange Control Commission to ascertain in advance whether such request would be granted if applied for in writing. He explained that several requests had been made for exchange by telephone and that in each case the Control Commission had informed the Bank that these requests would not be approved. The Bank, therefore, had not actually made any formal requests for exchange with the exception of two cases where the merchants had personally seen the Exchange Control Commission and had received assurances that the exchange would be granted when the requests were made.

Sr. Valenzuela appeared extremely perturbed at the remarks of the Manager of the Bank, and expressed great annoyance that the Exchange Control Commission was not carrying out the instruction to remove these restrictions which he stated had been given to it by the Acting Minister of Finance, Dr. Cruchaga.

Sr. Valenzuela the next day brought this matter to the attention of Sr. Urrejola and as a result of statements made by the latter addressed the enclosed letter of April 24th to Mr. Scotten. The latter, accompanied by the Commercial Attaché, Mr. Bohan, on April 27th called upon Sr. Valenzuela and handed him the enclosed letter of April 27th, and stated that in case Sr. Valenzuela desired any further clarification regarding the points brought out in the letter, Mr. Bohan or himself would be glad to answer any questions which he desired to ask.

After reading this letter carefully, Sr. Valenzuela stated that he was extremely glad that this matter had been brought to his attention personally [Page 335] since Sr. Urrejola had received the strictest sort of instructions from Dr. Cruchaga to remove the exchange restrictions upon American Commerce. He added that Sr. Urrejola had told him categorically that there were no restrictions since the first of April and that he, of course, had believed that all such restrictions had been removed.

Mr. Bohan at this juncture pointed out to Sr. Valenzuela the extremely difficult position in which our merchants were placed when they had been given to understand that no further exchange difficulties existed, and yet found their requests for exchange refused by the Exchange Control Commission. He read to Sr. Valenzuela the text of several requests for exchange on the part of merchants both here and in Valparaíso which had been refused by the Exchange Control Commission. Mr. Scotten explained that it was not the Embassy’s desire to make an incident of these particular cases as the merchants in question did not desire to incur the displeasure of the Control Commission, and he requested that they not be brought specifically to the attention of Sr. Urrejola. He added that the Embassy was only desirous of smoothing the path for American commerce, and that if as a result of the categorical instructions which Sr. Valenzuela had stated had only been given a few days previous to Sr. Urrejola, the restrictions should in fact be removed, it was better not to make an incident of past cases and to see how this plan worked in the future.

Sr. Valenzuela repeated that he was most grateful that this matter had been brought to his attention and he admitted frankly that he had had his own suspicions regarding the assertions of Sr. Urrejola to the effect that no restrictions had existed since April first.… He asked that the Embassy bring to his attention immediately any and all cases which might arise where the Exchange Control Commission in the future caused difficulties regarding requests from our merchants for exchange, which Mr. Scotten assured him the Embassy would be glad to do.

In conclusion, both Mr. Bohan and Mr. Scotten expressed the hope that the Control Commission would actually follow out this new plan of imposing no restrictions whatsoever on exchange, at least for a long enough time to prove whether the Chilean Government was physically able to carry it out. In other words, whether there was a sufficient supply of export draft exchange available to meet the requirements of importers of American merchandise. Mr. Scotten added that we were dealing with a perfectly reasonable request from the American Government to the Chilean Government and that the Chilean Government would doubtless receive from time to time further requests, and that if Chile felt itself unable to accede to these requests and would state so quite frankly, it would find that such a refusal would be treated with sympathy and consideration by the Embassy. However, the [Page 336] Embassy did expect a frank reply as to whether such requests could be acceded to or not.

Sr. Valenzuela repeated that he understood the situation perfectly and that our complaint was entirely justified and he added that he sincerely hoped that in the future no further difficulties would be experienced with the Exchange Control Commission.

While I am perhaps unduly pessimistic, I am far from convinced that notwithstanding the obviously sincere desire of Dr. Cruchaga, the Acting Minister of Finance, and of Sr. Valenzuela, the Under Secretary of Finance, to comply with the promise given to me by Sr. Ross before the latter’s departure for Europe, that these exchange restrictions would be removed, that such will, in effect, be the case. The Exchange Control Commission under the Chilean law is to all intents and purposes an autonomous commission and Sr. Urrejola, the Vice President but actual head of the Commission, is not an official of any Ministry. He acts, therefore, practically as a czar in matters relating to exchange and even though Sr. Valenzuela stated that the Control Commission is subject to the Supreme Government, as regards matters of general policy, it needs a Finance Minister of the force and prestige of Sr. Ross himself to make any instructions given to the Control Commission really effective. Furthermore, even granted goodwill on the part of the Exchange Control Commission considerable doubt exists whether the practice could be followed for more than a short time of granting unrestricted exchange to cover imports of merchandise from the United States and Great Britain without the rate of the peso sliding to such an extent as to seriously embarrass the Chilean Government. As the Department will see from the Commercial Attaché’s report referred to above, the free market rate has already fallen from approximately 25 a few months ago to approximately 28 at the present time, and it is felt by competent observers that should export draft exchange be given freely the export draft rate would rapidly fall to the free market rate. It is true that the large majority of importers of American merchandise would prefer to be confronted with a low rate of the peso rather than the innumerable difficulties placed in their way at present by the Exchange Control Commission, but this point of view is not shared by most Chilean officials who believe that it is necessary for the economic welfare of Chile to maintain the peso at approximately 25 to the dollar.

Respectfully yours,

Hoffman Philip
[Page 337]
[Enclosure 1—Translation]

The Under Secretary of the Chilean Ministry of Finance ( Valenzuela ) to the Counselor of the American Embassy ( Scotten )

My Dear Counsellor and Friend: In the desire to clarify the difficulties on importation of American merchandise which you referred to me last Monday which were being presented to the National City Bank through the Exchange Control Commission, I have asked for information on the case and the said Commission tells me that since the first of this month all the difficulties to which you alluded have been removed and that no shipping documents are required in order to authorize exchange for the exportation of American merchandise.

The Exchange Commission informs me further that the complaint of the National City Bank of which you told me at that time and which the Manager confirmed in your presence, is wholly unjustified because all the “solicitudes” which this Bank has presented during the course of the present month have been despatched, and in this connection, cites one for US$7,000 for importation of yarn, for Mr. Luis Rocandio, and another of the 18th of April for US$791.20 for the importation of steel for Mr. Salomon Sack.

Mr. Urrejola informs me moreover, that in spite of the above, he called the Manager and the Exchange Trader of the National City Bank to ask them the origin of the complaint which he made to me last time in your presence, and both answered that they believed that in granting the former “solicitudes” the Commission had made an exception, but they do not add any antecedent in confirmation of their complaint.

In view of the above, I hope that you will realize that the difficulties which you fear do not exist and if any concrete case is presented please inform me of it.

Very truly yours,

Guillermo Valenzuela
[Enclosure 2]

The Counselor of the American Embassy ( Scotten ) to the Under Secretary of the Chilean Ministry of Finance ( Valenzuela )

Dear Sir: I have great pleasure in referring to your letter of April 24th and wish to express my sincere appreciation of the interest you have taken in this matter. I have no hesitation in stating that with your valuable help, so well indicated in your letter, all the difficulties with which we are confronted, will be resolved forthwith.

[Page 338]

Concerning the details of your letter, I desire to clarify one very important point which I trust you will explain to Mr. Urrejola. It is not a fact that the National City Bank of New York has made any complaint insofar as I know, regarding this subject. From what I have been able to learn from the Bank, and as you are no doubt aware, the Bank merely acts, in these exchange matters, as an intermediary or agent for merchants who desire to make requests for exchange to cover importations of merchandise. The complaints did not originate from the Bank, but from merchants. They brought their complaints to us direct here in the Embassy. What actually happened is that we, in an endeavor to clarify and confirm these complaints, found it convenient to consult the different banks and among others, we consulted the National City Bank of New York, who finance a considerable amount of imports from the United States, in this matter.

The statement made by Mr. Urrejola to the effect that all formal requests for exchange had been granted, appears to be correct in the strict technical sense of the word. However, you will undoubtedly recollect that at the time of our recent conversation at the luncheon given to Mr. Merrill, I approached the Manager of the National City Bank of New York regarding this matter and it is my recollection that he stated to both of us, that it was quite correct that all formal “solicitudes” had been approved. However, I believe you will also recall that he stated that it was his understanding that his Exchange Trader had received verbal instructions from the Exchange Control Commission not to make “solicitudes” for those exchange transactions which were not covered by actual shipping documents already arrived in Chile and naturally out of deference to the Exchange Control Commission, the Bank did not make formal requests for exchange in those cases where prior verbal approval had been solicited and refused. I understand that from time to time importers request exchange in cases where documents have not yet arrived and as far as I have been able to ascertain, the Bank in each case has refrained from filing formal “solicitudes” with the Exchange Control Commission for export draft exchange, because prior verbal consultation with the Exchange Control has indicated the Control Board’s unwillingness to approve them. Naturally, having followed a procedure such as this, the Bank would not be in a position to cite any concrete cases of written refusal on the part of the Exchange Control Commission.

In a conversation I had to-day with the Manager of the National City Bank of New York, I took occasion to inform him of the remarks contained in the third paragraph of your letter. He replied that on the basis of information given him by his Exchange Trader, it was his understanding that the two specific cases mentioned by you in the second paragraph of your letter, had been consulted verbally, as is [Page 339] their usual practice, with the Exchange Control Commission prior to filing the formal “solicitudes”. Verbal approval was received in these two cases from the Exchange Control Commission, and as a consequence, the Bank had filed its formal “solicitudes” and they were approved. The Manager of the Bank also went on to state that he had been recently called in by Mr. Urrejola regarding this matter and that it was quite correct that he did not discuss Exchange restrictions with the Exchange Control Board as he felt that this was a matter more properly concerning merchants and importers. Also that in his conversation with Mr. Urrejola, this gentleman stated categorically that since April 1st, all exchange restrictions in connection with importations from the United States, had been removed. This being the case and in view of the assurances contained in your letter under reply that all obstacles surrounding the acquisition of exchange for merchandise from the United States, have been removed, I now feel confident that there will be no further difficulties regarding this matter.

Very truly yours,

Robert M. Scotten
  1. Neither found in Department files.
  2. Robert M. Scotten, Counselor of the American Embassy in Chile.
  3. Mr. Merrill, the president of the Pan American Society and of the All America Cables Company, and his party were on a good will tour in South America with the object of presenting the gold medal of the society to the Presidents of Brazil, Argentina, Chile, and Peru.