825.5151/370
The Ambassador in Chile (Philip) to the Secretary of State
[Received December 1.]
Sir: I have the honor to acknowledge the receipt of the Department’s Instruction No. 144 of the 13th instant, with enclosure from the Foreign Manager of the Motion Picture Producers and Distributors of America, Incorporated, which refers to funds of American motion picture companies now blocked in Chile due to the refusal by this Government to grant export draft facilities.
This subject involves the crux of the majority of our trade difficulties with this country. For the past year and a half the Embassy has been constantly occupied with it and has employed all means at its disposal to bring about an improvement in the situation.
It is generally recognized that Chile labors under great disadvantage in the matter of dollar exchange. This may be considered as due in a measure to the fact that the proceeds from the sale of mineral deposits, which form the bulk of Chilean exports to the United States, do not return to Chile in their entirety but are utilized in part for the financing abroad of their large Chilean investments by the American companies carrying on the business. This argument is a favorite theme of those directing Chilean finances. At the same time a part of the exchange which is derived from such sales and which does return to Chile is earmarked by the Government for the servicing of the Foreign Debt, under an arrangement which has not been accepted by the holders of Chilean Government paper in the United States.
The preoccupation of the Embassy is concerned with dollar exchange accruing from these and other sources, and upon which the financing of our export trade to Chile most largely depends.
Information as to the available amount of such exchange is not forthcoming through official channels here. A Board of Exchange Control holds sway over these resources. This Board arbitrarily refuses the majority of requests for the transfer of peso accounts to the United States with the curt statement that no exchange exists. Frequently, [Page 363] however, exchange is granted to firms doing business here in the nature of a favor. This procedure gives rise to the supposition that such dollar exchange as is available is utilized by the Government chiefly for its own confidential interests and not for the equitable liquidation of current trade with the United States.
As a matter of fact the Embassy’s investigations lead it to the opinion that a sufficiency of dollar exchange normally accrues here to finance the imports from non-compensation treaty countries were this exchange devoted to that purpose and not to the amortization of depreciated Government paper and other purposes. What becomes of it and how it is employed are matters upon which the Embassy lacks authoritative information.
In a conversation with the Minister of Hacienda some two weeks ago I mentioned the unfortunate impression which has been created by the failure of the Government to cause the liquidation of the blocked funds concerning which he had given me assurances last January. His reply was not satisfactory. He intimated that much had been done in this direction in spite of the extreme scarcity of dollar and pound exchange. I informed him that the total of these blocked funds had considerably increased since last January.
For the Department’s confidential information I may say that I have gained the impression that under the direction of an astute Finance Minister the exchange resources of the country are being run on a ‘rob Peter to pay Paul’ basis and that American interests are frequently called upon to play the role of the unfortunate Peter.
It must be acknowledged, however, that with the possible exception of the Germans, who have made noted temporary advances in their exports to Chile under their compensation arrangement, there are no foreign markets which seem to find the situation to their liking. And I suspect that in the last analysis all countries doing business with Chile labor under very similar difficulties.
The new question which has now arisen, namely, the arbitrary pegging of the peso at thirty-five to the dollar for gold exchange, has overshadowed for the time being those of an analogous nature.
There has been no indication as yet of an intention on the part of the Government to reply to our note of November 6th on that subject and it is possible that it entertains the idea of using this note as a basis for discussions after the conclusion of the Inter-American Conference at Buenos Aires.
I may say that from a confidential and seemingly reliable source I have learned that certain investigations have been carried out in the Ministries of Foreign Affairs and Finance as to the consequences of possible retaliation on the part of the United States. According to my informant the results of these investigations have indicated that such retaliation would entail serious consequences for Chile.
[Page 364]In the meantime, it has been reported to me that Señor Ross has stated that the rate of thirty-five to one will be maintained.
In this connection the Embassy surmises that the Government may be endeavoring to force certain exchange transactions at that rate, prior to a possible reduction of the rate later on.
No general observations regarding the emergencies of the Chilean exchange situation would be complete without reference to those transactions which are carried on in the free, or bootleg, market.
During the notorious persecution of the Compañía Chilena de Electricidad by the Government under cover of the technicalities of Law No. 5107, Don Gustavo Ross assured me, before he left for Europe early in 1936, that the sale of foreign drafts in this market would henceforth be tacitly permitted by the Government and that steps would be taken during the ensuing Congress to cause the modification of the law in question. No action has yet been taken in Congress to the latter end, but exchange negotiations are being carried out in the free market without any interference. The amount of foreign exchange thus acquired by independent brokers, at what is known as the free market rate (now around 29 pesos to the dollar), is known to be quite important. This exchange, being outside of Government control, is hence entirely lost as far as imports into Chile are concerned, owing to the fact that since August 20th last the Exchange Commission has refused to authorize such exchange at a rate above 26 pesos to the dollar and brokers were naturally not disposed to sell their holdings at this rate.
Presumably such exchange is chiefly absorbed in the surreptitious transfer of private funds from Chile to foreign countries. I am of the opinion that this practice on the part of well-to-do Chileans is at the bottom of many of the Government’s economic difficulties. I am told that no man of large wealth, from the Minister of Finance down, feels justified in keeping his liquid capital in Chile under existing conditions.
To revert to the original subject of this despatch, the estimate of funds owned by American moving picture companies now blocked in this country, as given by Mr. Herron in his letter of the 28th of October to the Department, is considerably greater than is indicated by the Embassy’s investigations. It may be mentioned also that in the case of the Metro Goldwyn Mayer Corporation, a large proportion of those funds may have been invested in the recent erection of a new moving picture theater building in Santiago.
Another phase of the situation renders the Embassy’s efforts rather more difficult than might otherwise be the case. I refer to the disinclination of individual firms to have their names brought up as having sought the Embassy’s assistance. This applies to the representatives of the more important firms in the United States carrying [Page 365] on business in Chile. The reason for this attitude is fairly obvious. Such firms, from time to time, may have been accorded exchange permits by the Government in a more or less confidential manner. They have good reason to believe that if their appeal to the Embassy became known, such authorizations would not be forthcoming in the future.
Nevertheless, it has been my conception that it is preferable to group my representations in the matter of American blocked funds to include them all, rather than to emphasize one, or several only, as requiring attention. By the adoption of the latter method it might be possible, on occasions, to cause favorable action to be taken in individual cases. I understand that this procedure is followed by certain other representatives here. But in the case of American exporters to Chile, their number is very considerable and the former course seems to me the more dignified as well as equitable for our Government to pursue. For the guidance of the Embassy, I would appreciate an expression of the Department’s opinion on this point.
At the present moment and until some light is thrown upon the future attitude of the Chilean Government as regards the recent discriminatory ruling in the matter of gold exchange, I think it very doubtful if any headway can be made in the matter of blocked funds.
It has been announced that the Minister of Hacienda will assume the duties of Foreign Minister during the absence of Don Miguel Cruchaga at the Inter-American Conference in Buenos Aires. I will seek the first opportunity to impress upon the latter, before his departure, the importance which the Department attaches to the delayed liquidation of American blocked funds in Chile.
Respectfully yours,