840.51 Frozen Credits/8882: Airgram

The Secretary of State to the Ambassador in Bolivia (Boal)

A–251. Reference is made to the Embassy’s despatch no. 1011 of December 19, 1942,15 and in particular to the concluding paragraph thereof, in which it is suggested that the Department consider the licensing of all transactions of the Banco Central which affect its dollar accounts on deposit with its correspondent in the United States.

Careful consideration has been given to the Embassy’s suggestion and conversations have been held with representatives of the Treasury [Page 580] Department and of the Board of Economic Warfare. Despite the desirability of restricting the granting of foreign exchange to Proclaimed List firms by the Banco Central, it is not considered either practicable or feasible to impose the suggested sanction at the present time or to intimate to the Bolivian Ambassador that it may prove necessary to impose such a sanction unless the Banco Central refuses its exchange facilities to such firms.

This conclusion is based on the following considerations:

1. Effective control over all dollar transactions of the Banco Central would require the licensing not only of transfers of dollars which were obviously tied up with foreign exchange transactions, but also all transfers of dollars in the United States in order to make certain that no foreign exchange transaction was indirectly involved. This could be achieved only by ad hoc freezing the Banco Central and then issuing a general license permitting a few clearly defined transactions which could in no way involve foreign exchange manipulations, such as payment of charges of United States banks, payments for the account of individual United States exporters to Bolivia, et cetera. A recent proposal to ad hoc freeze certain government owned banks in Argentina (not including, however, the Central Bank) was rejected by the Department because of the delicate political considerations involved.16 If for no other reason, the Department is opposed to applying a sanction against the Central Bank of a sister American republic, which has at least severed relations with the Axis, which it is not prepared apply against government owned banks of another sister American republic which has not even severed such relations. Furthermore such action against the Banco Central might have unfortunate repercussions on our program of imports of strategic materials from Bolivia.

2. The desired result of preventing Proclaimed List firms in Bolivia from obtaining foreign exchange, particularly Argentine pesos, could be substantially achieved by threatening to freeze Argentine banks that refused to give an undertaking not to extend their facilities to Proclaimed List nationals but, as has been pointed out, this proposal has recently been rejected by the Department and it is not possible to reopen this question at the present time.

3. The only other method of imposing restrictions on the ability of the Banco Central to use its dollar accounts in the United States to grant foreign exchange facilities to Proclaimed List firms would be to have the Treasury monitor such accounts. Under such a system all proposed transfers from such accounts over a specified figure would be referred to the Treasury. If the purpose of any such transfer was not clear, the Treasury would inform the United States bank involved that a license would be necessary before the transfer could be consummated and that the purpose of the underlying transaction would have to be disclosed in any application for a license.

If the specified figure were low, monitoring would approximate ad hoc freezing; in other words such a system approximates ad hoc [Page 581] freezing in direct proportion to the relation of the specified figure to zero. If the specified figure were high, it could easily be circumvented by the Banco Central’s effecting transfers in amounts below the specified figure. The result would probably merely irritate the Bolivians without accomplishing the purpose intended.

4. It is not considered advisable to represent to the Bolivian Ambassador that sanctions might be employed against the Banco Central unless we are prepared to implement such representations.

For your information, even if the Department were prepared to approve such a sanction, licenses would necessarily have to be determined and issued by the Treasury, although the Embassy’s recommendations would be sought in each case. Administratively, it would be impossible for United States banks to operate under a system where the licenses were issued by the Embassy.

The Department fully realizes that one of the keys to a solution of the problem of the replacement of Axis firms in Bolivia is a drying up of the sources of the foreign exchange which furnish the basis of importations of supplies by such firms from Argentina. It is the Department’s belief, however, that a workable program for the replacement of Axis firms must be submitted to the Bolivian Government before the imposition of the suggested sanction on the Banco Central is further considered.

  1. Not printed.
  2. See the undated memorandum prepared by James H. Mann, on aid to the Axis through use of Argentine financial facilities, p. 480.