Foreign Relations of the United States Diplomatic Papers, 1937, The American Republics, Volume V

825.5151/396

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

No. 601

Santiago, May 19, 1937.
[Received May 25.]

Sir: Recently it has been brought to my attention that in reply to an application by a Chilean importer for an export draft exchange permit to cover the purchase of two commercial airplanes in the United States, Señor Rafael Urrejola, President of the Exchange Control Commission, replied by letter to the following effect:

“Concerning the importation of two Beechcraft passenger airplanes, we wish to advise you that there is no inconvenience for us in authorizing it, covering the value of $17,000 (U.S.) with gold from Placer Mines (Oro de Lavaderos) at a price to be determined by the chief of that service.”

I have the honor to report that such permits are extended with considerable frequency by the Exchange Control Commission. The procedure in these cases is almost invariably the same. The importer of American merchandise presents his permit at the “Oficina de Lavaderos de Oro” and is there informed that exchange will be furnished at the rate of thirty-five pesos to the dollar. Although the Embassy understands that in a few special cases American interests have been granted gold exchange at a more favorable rate than thirty-five pesos to the dollar, these transactions are the exception, and the great majority of American importations of the so-called luxury articles are admitted only at that rate.

Thus the sources of exchange permits entirely ignore the assurances given me by Don Gustavo Ross on December 11, 1936,⁵⁴ that henceforth the official rate of gold exchange would be twenty-six pesos to the dollar. Señor Ross made this statement seemingly as a result of my note of November 6, 1936,⁵⁵ to the effect that our Government deemed the rate of thirty-five pesos as discriminatory.

I may add that both the Exchange Control Commission and the “Oficina de Lavaderos de Oro” have insisted that they have no authority to fix an official rate of exchange. However, as stated, in certain favored cases, such gold exchange has been furnished to American interests by the latter at a lower rate than thirty-five pesos to the dollar. Legally the Banco Central is the sole arbiter of official rates of exchange. But in practice the bank is ignored by the Exchange Control Commission and the “Oficina de Lavaderos”.

I was at one time informed that the “Oficina de Lavaderos” had the practice of informing importers that no gold exchange existed at the “official rate”, but that they could be obliged at the rate of thirty-five pesos. However, of recent months the custom of the “Oficina” has been merely to offer that rate only. Thus, the exchange situation has remained much as it was when the fixing of the objectionable gold rate was announced on October 30, 1936 (Cable No. 108 of October 30, 3 p.m.⁵⁶). Furthermore, no official confirmation of the new rate of twenty-six pesos has been received by the Embassy, as Señor Ross gave me to understand would be done.

The above-mentioned reply of the President of the Exchange Control Commission to a prospective importer embodied the additional inference that commercial airplanes are now included in the extensive category of American products denoted as luxury articles.

Such arbitrary treatment of our manufacturers seemed to me to call for notice. The list is already so extensive as to cover most of the principal exports to Chile from the United States—all of which, when permitted entry, are necessarily covered by the artificial rate of thirty-five pesos. At the same time it is a well known fact that the supply of Chilean gold is much behind the necessary amount to cover the bulk of current imports of such articles.

I have brought the unsatisfactory situation verbally to the attention of the new Minister of Foreign Affairs on several occasions. He has promised me his personal assistance in the matter, but I surmise that the Foreign Office has focussed its attention upon the prospective conversations in Washington, in July, on the arrival of its commercial mission now in Japan, and that little action is to be expected in the interim.

Under the circumstances, I have judged it expedient to call the Ministry’s attention to the situation by means of a note.

I beg to transmit to the Department a copy of this communication dated the 17th instant.

With special regard to the activities of the Exchange Control Commission, which has assumed the role of the Embassy’s “bête noir” during the past year or more, I have to report that Señor Urrejola has put himself out to express to me and to Dr. Randall, the Acting Commercial Attaché in Mr. Bohan’s absence, his great desire to assist in the solution of our difficulties. This is a new departure for Señor Urrejola and it may be that it is due in some measure to the reported desire of the new Minister of Hacienda, Señor Francisco Garcés Gana, to curtail the activities of the Commission.

In the case of the Compañía de Electricidad, Mr. Curtis Calder, now here on a visit, has informed me that his Company recently has been granted all the exchange promised under the Ross-Calder Agreement.⁵⁷ Señor Urrejola states that he has liquidated a number of the frozen or blocked American credits, to which subject I have attached particular importance in my conversations, and that he will shortly propose a plan for the closing up of all these credits. The Embassy will shortly furnish Señor Urrejola with as complete a list of these credits as it is possible for it to assemble.

On the whole, I feel that our general trade outlook in Chile shows an improvement and it is to be hoped that further cabinet changes, which are now rumored as the probable outcome of the political situation here, will not affect this adversely.

Respectfully yours,

Hoffman Philip

[Enclosure]

The American Ambassador (Philip) to the Chilean Minister for Foreign Affairs (Gutiérrez Alliende)

No. 469

Santiago, May 17, 1937.

Excellency: I have the honor to refer to our conversation of the 13th instant relative to the unsatisfactory situation which has existed for some time as regards the importation from the United States of all merchandise which has been classified by the Exchange Control Commission of the Republic under the designation of “luxury articles” and, as such, permitted to enter the country only against foreign exchange arising from Chilean produced gold.

In this connection I beg to recall the position of my Government as expressed to Your Excellency in my Note No. 318 of November 6, 1936, in which it was set forth that as long as a special rate of 35 pesos to the dollar is maintained for the importation of certain classes of merchandise, which come chiefly from the United States, while imports of the same commodities from countries having compensation agreements with Chile are granted exchange rates more favorable than that governing such imports from the United States, my Government would have no course other than to regard that rate as discriminatory against the commerce of the United States.

I have been recently informed that in reply to a request to import commercial airplanes from the United States, the Exchange Control Commission has replied that such authorization would be granted subject to the availability of Placer Mines (Lavaderos de Oro) gold exchange.

The Embassy views with concern this apparent tendency of the Exchange Control Commission to augment the list of items now requiring payment in gold. Further, much of the merchandise on the gold list is of prime necessity to Chile and it is evident that there is an insufficient supply of Placer Mines gold exchange to cover the requirements of Chilean importers. It has been reported to me that deliveries of gold exchange are as much as three to four months behind current demand.

In view of this general situation, and of the recent expression of the Exchange Control Commission, I beg to request information as to whether aircraft and aviation materials have now been definitely-classified by the Government of the Republic as luxury articles and, as such, to be imported from the United States only against foreign exchange arising from Chilean produced gold and at the rate of 35 pesos per U. S. dollar.

Feeling assured of the desire of the Government of the Republic to facilitate in every way its trade relations with the United States, I beg to avail myself of this opportunity to suggest that the existing unsatisfactory situation might be ameliorated by the transfer of numerous articles now on the gold list to the category of those imported from my country with export draft exchange, should the Exchange Control Commission agree to this partial solution of the problem.

I avail myself [etc.]

Hoffman Philip

54. See despatch No. 438, December 12, 1936, from the Ambassador in Chile, Foreign Relations, 1936, vol. v, p. 366.
55. For the text of the note, see telegram No. 78, November 5, 1936, p.m., to the Ambassador in Chile, ibid., p. 360.
56. ibid., p. 358.
57. This agreement was signed on November 26, 1935, by Gustavo Ross, the Chilean Finance Minister, and C. E. Calder, president of the American and Foreign Power Co.; it provided for a reorganization of the Compañia Chilena de Electricidad, Ltd., and the settlement of its exchange difficulties.