The Minister in Ecuador ( Gonzalez ) to the Secretary of State

No. 502

Sir: With reference to my despatch No. 489 of August 18, 1936,42 summarizing the interpretative regulations43 of the Ecuadorean law establishing a system of exchange control and licensing of imports, I have the honor to report that the importers of American merchandise and American interests in Ecuador are very apprehensive as to the manner in which this law will be enforced. Considerable concern is expressed with regard to Article 23 of the Regulations which provides that the Ministry of Finance must classify the different items of import as “indispensable, useful and superfluous”. Since the Commission has authority to refuse licenses for merchandise not of urgent necessity and as sufficient exchange will probably not be available for all purposes, importers of American automobiles, radios, electrical appliances and other articles which are considered as necessities in the United States, are convinced that these will be classified as superfluous or luxury items and, therefore, it will not be possible to obtain the necessary licenses for their importation. I realize that in the absence at this time of any denial of permission to import these items, the question is in the nature of a hypothetical one. However, it would be most helpful if the Department could give some indication as to what stand might be taken in the event that these articles are classified as luxuries and permission is refused for their importation.

It is anticipated that another problem will arise in connection with the remittances of American interests. The Department is aware that the electric plants in Guayaquil, Riobamba and Quito, and other important holdings in the country are owned by American interests. Also, the Singer Sewing Machine Company has been actively engaged in a time installment business during the past two years. These interests anticipate that their remittances will be restricted to negligible amounts and later when the control is lifted, as in the previous systems, they will be faced with liquidating their accumulated balances at a much lower rate with the consequent loss.

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The other two important American interests, namely, The South American Development Company and the subsidiary of the United Fruit Company, will probably experience, at least for the present, no appreciable difficulties. The former is exempted from the provisions of the control whereas the latter need only conduct its exchange transactions through the Central Bank.

It is not possible at this time to set forth the exact position of the Government as concerns its budgetary requirements, or of the country in the matter of its international balance of payments. However, it is indicative that very much concern is felt with regard to both of these problems. Incidentally, the financing of the expenses of the boundary negotiations44 in Washington is a major problem which is being solved temporarily by the sacrifice of other necessities.

It is openly said that the large purchases abroad of munitions (roughly estimated at US$2,000,000) are principally responsible for the present acute situation in fiscal finances as well as the foreign exchange value of the sucre. The Minister of Finance is reported to have said that the Government will suspend these contracts for the time being. He is said to have added that this measure is necessary not only for reasons of international exchange, but also because of the excessive budget deficit. In this latter connection a very difficult situation appears to have already developed in that the armed forces are said not to have been paid during the past thirty days (payments of salaries are made ordinarily every ten days). There have been indications that the Government may correct this deficiency by borrowing from the Central Bank. This is a step, however, that it has been loath to take because of the consequent repercussions on the general political situation. Nevertheless, it would appear that the continued failure to make the scheduled payments to the armed forces would imminently endanger stability.

Respectfully yours,

Antonio C. Gonzalez
  1. Not printed.
  2. The regulations of August 15 are published in Registro Oficial, August 19, 1936, p. 105.
  3. See pp. 106 ff.