The Ambassador in Chile ( Philip ) to the Secretary of State
[Received May 27.]
Sir: I have the honor to refer to the Department’s telegraphic instruction No. 24 of May 12, 7 p.m.,36 with a special reference to final paragraph requesting me to report as soon as possible the status of the American blocked funds, the transfer of which the Minister of Finance promised to authorize just prior to his departure.
In reply reference is made to the Commercial Attaché’s report No. 389 of May 4, 1936,36a in which it was stated that no transfers of these funds have as yet been authorized by the Exchange Control Commission. It is, of course, regrettable that no action has apparently been taken by the Exchange Control Commission to carry out the promise made to me by Sr. Ross. However, certain practical aspects of this matter should, I believe, be taken into consideration before any further action is taken on the part of this Embassy to press this matter with the Chilean Government.
Prior to the departure of Sr. Ross on February 7, 1936, and in fact until March 23, 1936, upon which date the Banks were authorized by the Chilean Government to deal in exchange other than export draft exchange (see Embassy’s despatch No. 157 of March 31, 1936), the only exchange which could legally have been authorized by the Exchange Control Commission for the liquidation of the blocked funds in question was export draft exchange. Since, however, the Banks are now authorized to deal in free exchange, the latter exchange is available for the liquidation of blocked funds. However, as the Department is aware, both the export draft rate and more particularly [Page 344] the peso rate in the free market has fallen off to a considerable extent since the departure of Sr. Ross for Europe.
At the same time, as the Department is likewise aware, from the Embassy’s despatches, the utmost confusion prevails in the exchange market at the present time due partially and probably primarily to the scarcity both of free exchange and export draft exchange and partially to the tactics of the Exchange Control Commission which is apparently, during the absence of Sr. Ross, unable to handle the situation in a logical and orderly manner. Importers of American merchandise are having the greatest difficulty in securing exchange of any sort to meet their needs and in spite of the assurances given the Embassy on several occasions that no further restrictions exist regarding the granting of export draft exchange to importers either upon presentation of documents or prior to the same, the fact is that virtually no exchange has been authorized prior to the presentation of documents, and at the date of writing this despatch, importers of automobiles and radios are having difficulty in obtaining export draft exchange even upon the presentation of documents to the Exchange Control Commission. Furthermore, while it is true that the holders of blocked funds would probably have been glad to liquidate those funds at the rate prevailing upon the date Sr. Ross made me the promise referred to, I am not sure, nor is the National City bank which is the chief intermediary for such requests, whether they would be willing to accept the unfreezing of their credits at the present prevailing rate in the free market even if so authorized by the Exchange Control Commission. The fact is that according to the Manager of the National City Bank, since the latter has been authorized to deal in free exchange only one request has been received by the Bank to request authorization to liquidate a blocked account. This request, which came through the head office of the Bank in New York, was made on behalf of the firm of Remington-Rand to liquidate its blocked funds amounting to some $65,000, at any rate that could be obtained. I may mention that the National City Bank in Santiago has recently received authorization to liquidate its oversold position to the extent of $100,000 with free market exchange.
With this picture in mind I believe that the most important problem faced by the importers at the present time is to secure sufficient exchange to finance current trade rather than to unfreeze their blocked credits. Should I continue to exert pressure to secure a general liquidation of the blocked credits enumerated in the list submitted to the Foreign Office, and should the Control Commission actually give authorization for the liquidation of these funds, I fear that the use of any considerable quantity of exchange in this way would be a serious detriment to those importers whose chief preoccupation at present is securing exchange to carry on their current trade.[Page 345]
According to the press, Sr. Ross is sailing from Europe on the 22nd instant, directly for South America and should arrive, therefore, in Chile during the first part of June. If the Department will so authorize me, I recommend that I be allowed to defer any further action regarding this matter until he assumes his duties, at which time I will make an effort not only to secure his cooperation in straightening out the confused exchange situation, but in unblocking the funds referred to.