The Ambassador in Uruguay ( Dawson ) to the Secretary of State
[Received 3:54 p.m.]
322. President Baldomir sent for me yesterday to discuss various matters including the pending request of the Uruguayan Government for equipment to place the Rio Negro Project in partial operation. I explained our position carefully with particular reference to the Department’s opinion that the Uruguayan Government should abrogate that portion of the present contract pertaining to generating equipment, et cetera. The President said that he does not see how Uruguay could do so for the following reasons: Clause 57 of the contract gives the contractors the clear right to delay fulfillment in case of war. When the war broke out the German Consortium had ready for shipment much of the generating equipment for which the Uruguayan Government had already advanced over 4,000,000 pesos.
The President and his legal advisers are convinced that if Uruguay were to cancel the contract the Consortium would demand repayment [Page 604] in full and probably damages, and that any court of law would uphold the German claim. He estimates that cancellation would expose Uruguay to eventual losses of from 15 to 20 million pesos. He intimated that rather than run such a risk it might be better to suspend work entirely until after the war.
The President asked me specifically to inform the Department that nothing in the contract contemplates any German participation or influence in the operation of the project once it is completed. He said that Giorgi has the contract in his possession in Washington.
For reasons already known to the Department the Uruguayan Government is extremely desirous of placing the project in partial operation as soon as practicable in view of an impending power shortage which will be acute by the middle of 1943 or earlier. If we were disposed to furnish the limited equipment requested (with proper guarantees of course for the temporary elimination of all German influence) our action would I believe assist the Uruguayan Government politically, contribute to a long-range solution of the fuel and shipping problems, give us a bargaining point which we could use to advantage, and help counteract the impression encountered in official and business circles that Uruguay has not been given all the consideration which it deserves in return for its wholehearted support of our policies.