The Ambassador in Turkey ( MacMurray ) to the Secretary of State

No. 1618

Sir: I have the honor to refer to my despatch No. 1548 of September 7,47 and previous despatches on the Turkish exchange situation and to [Page 988] report that for the past six weeks exchange transfers have been proceeding at a very satisfactory rate. Since the first week in September exchange transfer permits had been issued for a total of $2,162,000 and during the past six weeks exchange transfers have averaged approximately $290,000 weekly. All applications for exchange filed during 1939 have now been covered by exchange transfer permits and the Istanbul Exchange Office advised the Embassy on December 6 that the permits then being issued covered applications up to March 26, 1940.

It is believed that little difficulty has been experienced in effecting the actual transfers, these having been done by cable remittance. The charge for cable transfers is, however, very high, in most instances 2 percent. Exceptions are apparently made for cable remittances covering imports of certain vital materials such as oil, iron and steel where the charge is at the regular rate of one half piaster.

Since the early part of the present year the Exchange Director in Istanbul has been supplying the Embassy weekly with figures covering exchange applications filed with and permits granted by his office. The Embassy was therefore able until fairly recently to figure currently the amount of the outstanding arrears, and occasionally to obtain some check on this figure. For example, in his speech at the opening of the Izmir Fair on August 20, 1940, the former Minister of Commerce referred to the total American arrears as of that date as $3,458,000. This figure, as reported in my despatch of September 7, was within $200,000 of the figure compiled by the Embassy based on data furnished by the Exchange Office, but it subsequently developed that that portion of the total representing 1939 arrears was much too small. The Embassy made repeated efforts during September and October to secure from the Exchange Office the exact figure for 1939 arrears but was put off with various excuses until on November 15th the Exchange Director advised the Embassy representative that the 1939 arrears had been completely liquidated. The Embassy assumes therefore that the permits issued between the early part of September and November 15, totalling approximately $1,000,000 were for the final liquidation of the 1939 arrears. According to the Exchange Director all permits issued since that date have covered applications filed during the current year. Since the statement of the Minister of Commerce regarding arrears, the new applications as furnished by the Istanbul Exchange Director total only some $245,000 and exchange permits granted since early September up to November 29 amount to $2, 161,000. In addition to the regular exchange transfer permits issued, the outstanding arrears of the Socony Vacuum, the Shell, and Steaua Romana oil companies amounting to nearly $1,000,000 have been settled through a special arrangement. The outstanding arrears [Page 989] should, according to the Embassy’s estimates, not be much in excess of $1,200,000.

However, on November 15 when the Assistant Commercial Attaché was discussing the question of exchange with the Director of the Istanbul Exchange Office, that official referred to the total arrears as between $4,000,000 and $5,000,000. When the Assistant Commercial Attaché expressed surprise that this figure was so much in excess of the Embassy estimate which was compiled from figures furnished weekly by the Exchange Office, and asked for an explanation of this very considerable difference, the Exchange Director stated that the difference undoubtedly arose from the fact that applications for large sums of exchange accepted some time ago by the exchange offices in other parts of Turkey had not been sent to him for inclusion in his records. The Embassy considers this explanation as most unsatisfactory as more than a year ago the Turkish Government, in order to simplify the handling of exchange applications and issuance of permits, centralized this work in the Istanbul Exchange Office. It seems incredible therefore that some $2,000,000 of exchange applications if regularly filed with other exchange offices would not have been reported promptly to the Central Exchange Office in Istanbul, particularly when it is borne in mind that for several months past there have been practically no imports from the United States. The Exchange Director was asked if he could furnish a total figure for the outstanding arrears and although he stated that he was engaged in compiling such a figure and would furnish it to the Embassy when available, he has not yet done so although the Embassy’s desire to be furnished with this information has repeatedly been called to his attention. His reply invariably is that he has not yet completed his compilations.

The Embassy is at a loss to understand and can only surmise what has caused this enormous jump in the total arrears. In the normal course of events there would be every advantage in exchange offices outside of Istanbul forwarding any applications received to the Istanbul Office with as little delay as possible. It seems difficult to believe therefore that applications for large amounts were held in local exchange offices indefinitely for no apparent reason. For example, the Exchange Director spoke of applications for large amounts of dollar exchange being made in Samsun. This seems most unlikely as Samsun is not an importing center and in all probability any American merchandise brought into that port would have been already cleared through the customs in Istanbul and exchange applied for. As a possible explanation the Embassy ventures to suggest that exchange applications have been filed covering certain government purchases made in the United States and involving large sums. As these purchases were paid for through letters of credit it may be the intention [Page 990] of the Turkish Government to recover the foreign exchange originally provided for this purpose. The advantage to the Turkish Government in filing applications for the exchange made available to cover government purchases is obvious—the Turkish Government would in this manner have placed government purchases on the same basis as ordinary commercial imports from the United States and in consequence eventually recover the dollar exchange which had been utilized to open letters of credit in the United States to cover the government’s imports of American merchandise.

The Embassy has no proof that such a course has been adopted by the Turkish Government and offers the above suggestion only as a possible explanation of the sudden jump in the amount of the outstanding arrears, and the coy behavior of and unsatisfactory explanation offered by the Exchange Director when pressed for details as to the origin of the exchange applications which would appear to have accounted for the sudden jump in the total arrears.

Respectfully yours,

J. V. A. MacMurray
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