823.5151/117: Telegram

The Ambassador in Peru ( Norweb ) to the Secretary of State

52. The Minister for Foreign Affairs2 yesterday requested me to meet with him and the Minister of Finance3 relative to the deterioration of the exchange and trade situation principally resulting from British trade and financial pressure. The Finance Minister stated: (a) That it is expected that Great Britain within a few days will block surplus exchange for Peru; (b) that the disappearance of free sterling exchange would result in such a depreciation of the sol that unrestricted imports would be impossible, (already automobile importers have been asked to substitute Canadian-made for American built cars); (c) that Peru is opposed to import restrictions and exchange control; and (d) that the Peruvian Government hopes that some plan for immediate assistance can be developed.

The Minister of Finance suggested that the most practical form of assisting would be a credit of about $5,000,000 against some 160,000 bales of the 1940 cotton crop, representing normal British cotton purchases during the rest of the year. He contemplates an operation by means of which warrants issued by Peruvian banks to Peru producers or exporters for cotton stored in Peru would be discounted in the United States, the proceeds being left in the United States for financing Peruvian purchases.

He believes the credit would be self-liquidating by continued demand for Peruvian cotton in spite of the outcome of the war. The Japanese have offered to buy more Peruvian cotton on a barter basis, but Peru does not want to obligate itself further to Japan.

The Minister of Finance also observed: (a) That he thought borrowing against legal reserve gold would be contrary to existing legislation and that borrowing against gold production would mean withdrawing of needed exchange since most of this gold is exported; (b) [Page 1136] that he recognizes the difficulty raised by Peru’s debt default4 and that he admits that some token settlement now would be very useful; (c) that this country has agreed in principle to participate in the Inter-American Bank but that $600,000 is as much as the nation can afford at present; (d) that he hopes that in the circumstances it will be possible for the two Governments to cooperate in a plan that will lead to permanent and profitable relationship, including comprehensive industrial and agricultural development, on a complementary basis, in Peru with capital from the United States; and (e) that the results of this effort to obtain a credit of some kind from the United States will influence the policy of the Peruvian Government in the near future regarding possible restrictions on imports to conserve foreign exchange.

There was no mention of a trade agreement.5 The details of the different organizations of the United States Government through which financial assistance may be extended to foreign governments were explained to the Minister. The two Ministers agreed to inform Beltrán6 by telephone regarding our conversation. An airmail despatch6a including a memorandum by the Minister of Finance will be sent in the pouch leaving May 24.

…The present government is a good moral risk and there is reason to believe that our action in this case may have a decided influence on the success or failure of the Prado administration. However, the present request may be assumed to be a preliminary to further similar requests for assistance.

It would be appreciated if the Department could telegraph its observations or any alternative suggestions.

Norweb
  1. Alfredo Solf y Muro.
  2. Oscar Ramos Cabieses.
  3. For previous correspondence, see Foreign Relations, 1938, vol. v, pp. 874 ff.
  4. For correspondence, see pp. 1142 ff.
  5. Pedro Beltrán, special Peruvian commercial delegate at this time in the United States.
  6. Not printed.