852.75 National Telephone Co./323: Telegram

The Ambassador in Spain (Weddell) to the Secretary of State

48. The situation of the telephone company which during the past 2 weeks had appeared to me to be making considerable progress toward a settlement favorable to the company has unfortunately now suffered a severe setback.

On March 5th the Minister for Foreign Affairs called me to the Ministry and read to me a rough draft of a note which he proposed to send me in reply to my note No. 263 of February 12. The draft appeared [Page 861]on the whole satisfactory, especially since it states that the legislation governing the relation of the American personnel to the company would be that existing prior to the Spanish Civil War. This would free the telephone company from the onerous provisions of legislation enacted during the past year which makes the employment of foreign personnel very difficult. The Minister also informed me verbally that the orders given to the company several months ago to the effect that no Americans could be reinstated in the company had been annulled. There was, however, a misstatement of fact in the note and I suggested to the Minister that this be clarified and that he redraft the note accordingly. Accordingly the same evening I sent him an informal aide-mémoire embodying certain facts which clarified the error existing in the note.

From the conversation reported above and several informal conversations at the Foreign Office since that time it appeared that the most serious fuels of friction now existing between the International Telephone and Telegraph and the Government had been eliminated and that it only remained to clear up the purification (depuración) of two or three of this American personnel. Yesterday, however, Caldwell showed me a copy of an official letter addressed to the President of the Board of the National Telephone Company by the Government delegate stating that the Minister of the Interior had ordered that eight Americans including himself who constitute one-half of the American personnel should be separated from all connection with the National Telephone Company as a result of depuración proceedings (Behn is not included in this list).

I learn that this action was decided upon at a Cabinet meeting on March 9th. Furthermore Caldwell informed me that the National Company had also received instructions from the Ministry of the Interior to postpone the stockholders meeting which was scheduled for March 30 pending the drawing up of a balance sheet. Caldwell explained that the drawing up of a balance sheet would be a lengthy matter on account of the inefficient accounting system of the Spanish officials who managed the company during the Civil War. Its non-preparation it should be pointed out was due to the exclusion from their posts of American accounting officers. Both he and his lawyer are convinced that this action on the part of the Minister of the Interior is illegal and that the reasons given by Pren constitute a subterfuge as many stockholders’ meetings are held here prior to the balance sheet having been prepared.

At Caldwell’s request I have addressed a personal letter to the Minister for Foreign Affairs expressing my surprise and disappointment at the action taken against the eight American employees of the company and requesting the Minister to inform me of the charges which have been proved against these officials. Colonel Behn is expected [Page 862]to arrive in Madrid on March 18 and I will take no further action pending his arrival and further consultation with the Department. In the meantime, however, in view of what I frankly consider to be the bad faith of the Government and its decidedly hostile attitude to American interests as evidenced by the above I feel I should repeat my previous recommendations to the effect that our Government abstain from granting any credits, loans, or in fact any favor whatsoever to the Spanish Government for the time being. I also feel that the firm of J. P. Morgan should be persuaded if possible to refrain from extending any loan to the Spanish Government (which I learn they are contemplating) until this matter is cleared up.

Weddell