The Ambassador in Turkey (MacMurray) to the Secretary of State
[Received April 2.]
Sir: Referring to my despatches No. 1314  of January 22, 1940, and No. 1316 of December 30, 1939,30 with regard to developments in American-Turkish trade relations, I regret to have to report that a delay has occurred in the liquidation of the exchange arrears which appears to the Embassy entirely unwarranted.
The Department will recall that commencing December 15, 1939, exchange permits bore a notation which required the payment of an exchange premium of 37½ piasters per dollar. Such permits were not utilized since the holders were unwilling to pay the required exchange premium. The Exchange Control Office in Istanbul continued, however, to issue such permits up to January 2, 1940, when the issue of permits was discontinued in consequence of the decision made by the Inter-Ministerial Committee on that day that “no premium shall be applied to the countervalue of commercial imports made from America prior to December 4, 1939.” As reported in my despatch No. 1341 of January 22, 1940, there was a delay of two weeks in the resumption of the issue of permits without a stamp requiring the payment of an exchange premium; such permits were to be issued in the first place, of course, in exchange for the permits with such a stamp given out between December 15 and January 2.
The Embassy had expected that the replacement of the permits issued between December 15 and January 2 would be accomplished with only [Page 966] a brief delay, and that the Exchange Office would then proceed to the issue of new permits. Weeks passed by, however, without any new permits being issued. In response to frequent inquiries made by a representative of the Embassy, the Director of the Exchange Office in Istanbul gave it as a reason for the delay in the issue of new permits that his office was busy with the issue of permits to replace those previously given out, and that no new permits would be issued until all the old ones had been replaced. While this reason appeared plausible at the beginning, it became less and less persuasive as time went on. The Director of the Exchange Office alleged also that the replacement of the old permits was delayed by the fact that a large number of local firms had failed to present their old permits for replacement by new ones. It is difficult to believe that there are any considerable number of such cases, inasmuch as the local importers have already deposited the countervalue of their invoices in local currency and would have no possible reason for refusing to exchange their permits.
After three weeks had elapsed without the issue of new permits being resumed, I decided to bring to the attention of the Minister for Foreign Affairs the situation obtaining in the matter of the liquidation of the exchange arrears. I took the matter up with him on February 9, 1940, and pointed out that no new exchange permits for the transfer of payments for commercial importations from the United States had been issued by the Exchange Control authorities in Istanbul since early in January, the only permits given out during the past month being those issued to replace permits previously issued. In view of the fact that the exchange arrears amounted to more than $4,000,000 and that the non-liquidation of these arrears was having a harmful effect on American-Turkish trade, I requested the Minister to look into the situation with a view to expediting the liquidation of the arrears. I also brought to his attention that, although the American-Turkish Trade Agreement31 stipulated that the Turkish Government should make available exchange for commercial imports from the United States in the chronological order in which requests for exchange were made, and although there existed large arrears, the Embassy understood that considerable amounts of exchange had recently been allocated, through the opening of letters of credit, for new commercial imports from the United States; and I urgently requested the Minister to take steps to bring about the cessation of this practice and to have the money in question allocated to the liquidation of the arrears.