The Secretary of State to the Ambassador in Ecuador (Long)
A–58. Please take appropriate action on the following communication which the Department has received from the Acting Secretary of the Treasury in regard to the request of the Minister of Finance of Ecuador61 transmitted by your despatch no. 3024, dated May 25, 1942,62 for the opinion of the Treasury Department with respect to the interpretation which should be given to paragraph 10 of the Stabilization Agreement of February 27, 1942.
“I note that the Minister of Finance expresses his disappointment that the interpretation given to paragraph 10 by Dr. Salazar is not in conformity with this Department’s interpretation and in consequence the Ecuadoran Government increased the dollar value of the sucre by approximately 6 percent believing that this would not be regarded by this Department as a “substantial” change in the sense of paragraph 10. I also note that the Finance Minister particularly regrets this occurrence since the change cannot be corrected and since it was never the intention of his Ministry or of his Government to violate the terms of the Agreement.
“This Government has an interest in the dollar-sucre exchange rate which is scarcely less direct than the interest which the Ecuadoran Government has in the sucre-dollar exchange rate. Paragraph 10 of the Stabilization Agreement with Ecuador is an expression of this bilateral interest in the exchange rate between the two currencies and requires that the Secretary of the Treasury shall be given an opportunity for consultation before substantial changes in the exchange rate are made.
“The Treasury Department takes the position that the abovementioned change in the dollar value of the sucre made by the Ecuadoran Government was a “substantial” change within the meaning of paragraph 10. In fact, a change in the exchange rate of much less than 6 percent may be a “substantial” change. For example, under certain conditions, a change of 1 or 2 per cent in the exchange rate may be expected to have a substantial effect on the delicately balanced financial relationships that normally exist between any two currencies.
“I shall appreciate it if you will communicate the above to the Minister of Finance in Ecuador. Please also convey to the Minister my satisfaction in his assurances that no further changes in the dollar-sucre rate of exchange are contemplated unless, after some time, special and important circumstances intervene to require a change. Now that this Department’s interpretation of paragraph 10 has been made [Page 395] clear, I am sure that the Ecuadoran Government will afford me an opportunity for consultation on such an occasion.”