825.51/1284: Telegram

The Ambassador in Chile ( Bowers ) to the Secretary of State

294. Referring to the Embassy’s despatch No. 660, April 29, 1939,34 in exercise of the authorization contained in article XXIX, paragraph 3 of Law 6334 of 1939 the Government yesterday decreed:

That the foreign debt amortization funds may transitorily be utilized for the purposes stipulated in Law 6334.
That the Amortization Institute is authorized to deposit with the Treasury of the Republic the peso equivalent of such funds up to $6,000,000.
That as soon as the foreign loan which the Government may contract in exercise of the authorization contained in article XXVIII, [Page 691] Law 6334, shall no longer require the transitory application of the decree the President of the Republic will determine when the amortization funds shall be returned to the Amortization Institute for foreign debt amortization purposes.

Yesterday’s decree in effect indefinitely suspends amortization of external debt but in no way affects interest payments which it is stated will be continued on foreign bonds. The Government declares it was moved to take this action because it still has been unable to negotiate the foreign loans authorized by Law 6334 and because of the war’s effect on the country’s export trade, its normal economic development and difficulties which have been experienced in providing sufficient foreign exchange for machinery, raw materials and other [apparent omission].

The Manager of Amortization Institute informs me in strict confidence that this Government has already utilized to support the foreign exchange market the unused balance of $3,500,000 of 1939 foreign debt amortization funds and approximately $1,500,000 of unaccepted interest deposits which have reverted to increase these funds. The $5,000,000 were sold in the exchange market at 25 pesos to the dollar and the resultant 125,000,000 pesos were deposited in a special account of the Amortization Institute. These pesos in accordance with yesterday’s decree now will be turned over to the Treasury for the purpose prescribed by Law 6334.

  1. Not printed.