611.3331/206
The Minister in Uruguay (Dawson) to the Secretary of State
[Received August 22.]
Sir: This morning’s press contains a summary of what appears to be a very important statement regarding trade policy made yesterday at a Cabinet meeting by the Uruguayan Minister of Finance, Dr. César Charlone.
From this statement, which is reported to have been unanimously approved by the Cabinet, it would appear that Dr. Charlone and the Government are committed not only to the maintenance but also to the further extension and reinforcement of the bilateral policy and system of trade and exchange control which have had such unfortunate repercussions as respects American trade with Uruguay.
The press reports that Dr. Charlone’s statement will be published officially and as soon as the official text is available it will be forwarded to the Department. In the meantime, there is furnished the following summary, based on today’s press reports, which has been prepared by Mr. Reed:
The Minister stated that the Economic Readjustment Law of November 9, 1934,37 (which established the import quota system) has made it possible for Uruguay to obtain an equilibrium in its balance of payments without resorting to foreign loans. The treaties of commerce and agreements regarding payments already signed cover at present more than 75% of Uruguay’s foreign commercial activities. He declared that this figure demonstrates that, far from its being possible to abandon the system of compensation in order to return to the previous standard of a free economy, Uruguay must persevere in the policy followed and reach total compensation, if possible. He added that the system in question is susceptible of progressive perfecting, with which the Government is now occupied and which recently resulted in the unification and coordination of the controls of importation and exportation. In the same manner that the Government, before beginning each fiscal year, adjusts its receipts and expenditures [Page 920] in the budget, there must be obtained in interchange (commercial) an adjustment of obligations in foreign money to the normal receipts which are produced for the country by its exports and other items in the balance of payments. This method has already begun to be applied for the year 1938, the probable production of foreign exchange and the form in which it can be used to meet the financial services of the Government, the Municipality of Montevideo, private enterprises and the payment of imports having been estimated in advance. It is calculated that the foreign exchange originated by the sale of products subject to control will amount to pesos 78,238,080, to which should be added 15,200,000 pesos from free exchange, in which are liquidated some balances of exportation, tourists funds, etc. In all, the probable revenues (foreign exchange available) should amount for 1938 to 93,500,000 pesos, according to very conservative calculations, which allow for the sale of most of the coming wool clip in 1939 instead of this year. With these revenues the Minister proposes to meet the financial services above referred to, which he estimates at 14,668,000 pesos, there remaining available 77,307,200 pesos, or somewhat more than £10,000,000.
With reference to imports covered by free exchange, the Minister reported that 70% of the amount mentioned above (15,200,000 pesos) is for imports authorized and paid for prior to June 30 last, and that free exchange will only be authorized during the remainder of the year for merchandise materially impossible to compensate by export business.
Maintenance of Present Exchange Policy.
Of great importance for American business is the statement then made by the Minister that the same policy will be followed for the year 1939 and subsequently, that is, the advance determination each fiscal year of the probable receipts and requirements in foreign exchange. Simultaneously with the Budget, the appropriate offices will work out a preliminary balance of the receipts and payments of interchange (commercial).
Stabilization Fund.
The Minister emphasized the importance of the Exchange Fund (stabilization fund) which advances foreign exchange in moments of scarcity and recovers them in the opposite phase of the annual cycle. The action of this mechanism and the prior determination of the annual figure of importation can afford, in a policy of directed economy, the stability to which import business has a right. He mentioned that this fund amounted to 23,294,638.40 pesos in gold and foreign currencies, excluding foreign debt bonds in the possession of the bank. These reserves are to be defended and increased, especially to recover [Page 921] advances, amounting to 14,688,000 pesos, granted to countries which had debit balances with Uruguay as a result of difficulties last year in placing the wool clip, the equivalent of which is represented by the still unsold balance of wool, hides, wheat, etc.
Conclusions of the Minister of Finance.
The conclusions of the Minister of Finance were as follows (translation):
- 1.
- The country should arrange to subject the amount of its importations to the normal production of foreign exchange after the deduction of the public and private financial services.
- 2.
- The reserves of gold and exchange of the Exchange Fund (stabilization fund) must be protected and increased to the greatest possible extent, for which purpose arrangements should be made to compensate with the greatest amplitude the purchases abroad and other debit items of the balance of payments, with sales of our products.
- 3.
- There can and must be sought a more rational application of the exchange available, by establishing import quotas for those articles or merchandise, the nature or present volume of which may not be in accordance with the real needs of consumption. The same line of conduct should be observed with regard to imported articles similar to those whose domestic production is now developing, even to prohibiting their importation when the progress acquired by our industry permits it to cover the total needs of domestic consumption.
- 4.
- In order to give interchange transactions (commercial) the desirable stability, it is advisable to prepare annual plans prior to the beginning of each fiscal year. And for that purpose it is necessary that there be a close contact of the Bank of the Republic with the Executive Power, since, although by virtue of the laws in force, the application of those principles belongs to the State Bank, nobody doubts that this institution exercises such powers by delegation, as originally they form part of economic policy, the general objectives of which must be outlined by the Government of the Nation as the representative of collective interests.
Respectfully yours,
- Uruguay, Reyistro Naeional de Leyes, Decretos y Otros Documentos, 1934 (Montevideo, 1943), p. 1479.↩