The Acting Secretary of State to the Minister in Ecuador ( Long )
118. Arrangements with Salazar38 to carry out the Rio economic agreements39 have proceeded very satisfactorily as follows:
- Point 1: No action can be taken on the municipal waterworks and other improvements at Quito and Guayaquil until del Valle’s40 report is received.
- Point 2: Preliminary agreement has been reached between Salazar and the Export-Import Bank regarding the form of development corporation and the general conditions for the $5,000,000 loan.
- Point 3: A $5,000,000 monetary stabilization agreement has been signed between Salazar and the Secretary of the Treasury.41
- Point 4: An agreement for handling the $2,000,000 health grant has been signed by Salazar and the United States.42
With respect to other discussions between the two countries, a separate telegram has been sent to you describing fully the generous terms being offered in connection with the lend-lease agreement.43 The El Oro matter44 is receiving careful consideration.
At Rio members of the Ecuadoran Delegation declared that the Central Bank was in a precarious situation as a result of loans made to the Ecuadoran Treasury during the boundary dispute, and resulting increases in note circulation and decreases in reserves. We were informed that the Bank had exceeded its limit of loans to the Government, and had less reserves of dollars and gold against notes and deposits than the legal requirement of 30%. On our return to Washington [Page 384] Dr. Salazar obtained information through the Foreign Office from the President of the Central Bank which would indicate that the gold and dollar reserves of the country are higher than they have been in recent years and that the reserve ratio is actually 61%, making the Bank’s technical position one of the best in all of the American republics. The letter of the President of the Central Bank indicates that total obligations of the Government are 38,000,000 sucres, and that this is 5,400,000 sucres in excess of the amount which the Bank is legally empowered to lend to the Treasury.
Dr. Salazar has been urgently requesting a loan of $800,000 (although the equivalent of 5,400,000 sucres is only $360,000) to enable the Ecuadoran Treasury to pay off the Central Bank. He agrees that there are no economic reasons requiring this and even that it would be disadvantageous to the Ecuadoran Treasury to convert a sucre obligation to the Central Bank into a dollar obligation to the United States. Nevertheless he states that commercial shareholders of the Central Bank can make political capital of this situation and that if it is not quickly corrected the Government will face a political difficulty which may be disastrous.
The Department and other interested agencies feel that the United States has gone to unusual lengths to support the Ecuadoran economy, and is most unwilling to create the precedent of making such a type of loan, which is obviously undesirable economically. The Government of the United States has never made such a loan, but has always restricted its credits to constructive development or public works programs on the one hand, or to stabilization and other monetary arrangements on the other.
In view of the urgency which Dr. Salazar attaches to his request, the Department would appreciate your discussing the matter fully and confidentially with Mr. Glasser45 and informing it at once of your and his views.
- Eduardo Salazar Gomez, Minister Counselor of the Ecuadoran Embassy.↩
- Reference is to the program agreed upon between the Governments of the United States and Ecuador at the Third Meeting of the Foreign Ministers of the American Republics held at Rio de Janeiro, January 15–28, 1942. See memorandum to the Ecuadoran Embassy, June 9, p. 387.↩
- Carlos del Valle, a consulting engineer retained by the Export-Import Bank to make a study of the water and sewer systems of Quito and Guayaquil.↩
- A detailed arrangement, not printed, providing for the purchase and repurchase of sucres up to $5,000,000 in order to stabilize the rate of exchange; the Banco Central was designated as Ecuador’s fiscal agent and the Federal Reserve Bank of New York as that of the United States.↩
- The health program envisaged the sending of a group of experts to Quito with the object of improving the sewerage system, expanding malaria control, and advancing general disease control. For text of this agreement, effected by exchange of notes between Mr. Salazar and Under Secretary of State Welles, February 24, 1942, see Department of State Executive Agreement Series No. 379, or 57 Stat. (pt. 2) 1370.↩
- For text of the Lend-Lease Agreement, signed April 6, 1942, see p. 379.↩
- The project to rehabilitate an area evacuated by Peru in the settlement of the boundary dispute between Ecuador and Peru; see bracketed note, vol. v, p. 268.↩
- Harold D. Glasser, detailed by the Treasury Department to Ecuador, July 29, 1940, to provide financial advice. His original period of detail was one year, subsequently extended.↩