840.51 Frozen Credits 18/11

Memorandum by the Special Assistant at the Embassy in Costa Rica (Desvernine)44

Report on Freezing Controls and Other Measures in Costa Rica for the Month of October, 1943

Expropriated enemy properties.—About nine months have elapsed since most of the enemy properties in Costa Rica were expropriated by the Government under the provisions of law No. 26 of December [Page 120] 12, 1942, and to this date the appraisal proceedings have not yet been completed and none of the properties has been offered for sale, as contemplated in that law. As previously reported, the experts have submitted their valuation reports to the court and it is now necessary for the judge to issue an order establishing the value of the properties and fixing a date for their sale at public auction. The Government’s attorney has now presented a motion to the court in which he calls for the issuance of the order.

In the meantime, the attorney for Gmo. Niehaus & Co. (PL45) Celso Gamboa, who has been mainly responsible for the obstructionistic tactics which have dragged out the proceedings over a period of so many months, has presented a number of claims against the Government for alleged arbitrary action and has asked the court to declare law No. 26 of December 12, 1942, unconstitutional. Gamboa claims that article 18 of said law violates his client’s constitutional rights in that it limits their proof of damages (for the expropriation of the property) to the testimony of experts. The legal basis of his claim is far from clear, inasmuch as the parties were permitted to select their own experts, and the latter are apparently free to adduce any type of evidence in support of their claims, but this Embassy is not yet in possession of sufficient information concerning the points raised by Señor Gamboa to determine whether there is any merit behind them. It is known that Gamboa claims that merchandise which belonged to his clients and which was stored in a commissary at “Waldeck” and in their warehouse at Limon was arbitrarily removed by political and military officials of the Government, and that no compensation was made therefor. He apparently contends that under the rules relating to the valuation of the properties which were expropriated, his clients are unable to introduce proof of these damages. Gamboa ends his appeal in this fashion: “Against innocent victims of violations of law and justice perpetrated by other governments, who, because of petty intrigues today have to endure the moral and economic asphyxiation resulting from their inclusion in the (Proclaimed) list,—against these people, I say, the sovereign, constitutional Congress has unleashed all its force by means of an interminable series of laws without paying any attention to constitutional restrictions, and forgetting thus that force without justice is tyranny.” Gamboa’s suit represents the strongest attack yet made on enemy property legislation in Costa Rica and on the measures taken thereunder.

Governments use of expropriated properties to raise funds—Defense Bonds.—In its efforts to raise further funds to continue the work of the paving the streets in San José, the Government has [Page 121] resorted to taking out “Cédulas Hipotecarias” on some of the expropriated properties and using these as security to borrow funds. These Cédulas are bearer mortgage certificates and are readily acceptable in the local financial market. It is officially reported that the Government has taken out Cédulas in the value of ¢1,000,000 (one million colones) on Waldeck, a large cacao farm expropriated from Gmo. Niehaus & Co. and that the Government also intends to mortgage the coffee crop of Hacienda “La Caja”, the best and most valuable of the coffee properties, which was expropriated from Hubbe Hijos (PL).

The Government is also continuing to use Defense Bonds, which were issued under the authority of law No. 26 of December 12, 1942, to pay off contractors and other creditors, although it is apparently finding it increasingly hard to dispose of the bonds without a sizeable discount, which amounts in some cases to 30 and 35%. When these bonds were originally issued, it was generally understood that they would be used exclusively as a means of payment for the expropriated enemy properties, as well as a means whereby the Government could have the use of frozen funds, which are required by law to be invested in Government securities. Instead, the Government has resorted to disposing of these bonds by sale in the open market and in the manner described above, with the result that when the time comes to pay for the expropriated properties the Government may be forced to put out a new bond issue. Although two quarterly interest payments have come due on these bonds since they were issued, no interest has yet been paid and the bonds are generally considered a risky investment. On the other hand, Señor Alberto Echandi, the Minister for Foreign Affairs, recently informed a member of this Embassy that he had invested funds of his own in these bonds, and that in his opinion the Government had made a mistake in issuing these bonds, since they yield a high rate of interest (6% per year)—and represent a “profitable” investment for enemy nationals. Sr. Echandi indicated that after the war it might be a good policy for the Costa Rican Government to borrow funds from the United States at 3% for the purpose of calling in these bonds.

[Here follows a report on enemy trademarks and a proposed plan for the liquidation of Cía. Automotriz (Proclaimed List).]

Campaign of Proclaimed List Italians for deletion from the List.— The Embassy has continued to receive letters from Italians included in the Proclaimed List requesting reconsideration of their cases in view of recent developments in Italy. Recently a local newspaper published an item to the effect that Proclaimed List Italians in Costa Rica were planning to organize a committee to make formal representations [Page 122] to the United States and Costa Rican Governments requesting to be excluded from all controls and restrictions. This brought forth a formal statement from Señor Echandi, Minister for Foreign Affairs, in which he asserted that the recent armistice and other events concerning Italy had not altered the status of Italians in Costa Rica and that the attitude and policy of the Costa Rican Government with respect to them had undergone no change. Señor Echandi’s statement has apparently discouraged the Italians from further public agitation.

Enactment of decree defining status of Spanish nationals in Costa Rica included in Proclaimed List.—In response to pressure from the Spanish Minister in Costa Rica, who has long been seeking to induce the Costa Rican Government to exclude all Spanish nationals from economic and financial controls, the President has issued Executive Decree No. 73, dated October 22, 1943, which provides that for the purposes of article 3 of law No. 26 of December 12, 1942, Spanish nationals are to enjoy the same rights as Costa Rican citizens. It is unlikely that the Spanish Minister, or Pedro Surroca (PL) whom the former obviously sought to benefit, will be pleased with this “solution”. Article 3 above mentioned provides that Costa Ricans who are included in the Proclaimed List are subject to local controls provided they have engaged in some activity contrary to the interests of Costa Rica or its Allies. Inclusion in the Proclaimed List is evidently considered to give rise to a presumption of such activity since the burden of proof is held to rest on the person who seeks to be excluded from the controls. By decreeing that Costa Ricans and Spaniards are to be treated in the same manner, therefore, the Costa Rican Government has hardly improved the latter’s position, while freeing itself of the Charges of discrimination and treaty violation asserted by the Spanish Minister.

Eugene Desvernine
  1. Transmitted to the Department by the Chargé in Costa Rica in his despatch No. 764, November 8; received November 13.
  2. Proclaimed List.