831.77/147

The Secretary of State to the Ambassador in Venezuela ( Corrigan )

No. 1732

Sir: Reference is made to the Embassy’s despatch no. 3665 dated December 21, 1942, and the attached copies (original and translation) of memorandum no. 67 from the Venezuelan Embassy68 concerning the proposed purchase of the railroad between Caracas and Valencia. It is the wish of the Department that you discuss this matter personally with the appropriate officials of the Venezuelan Government.

The position of the Department with regard to the proposed purchase may be summarized as follows:

The Department views with sympathetic interest the desire of the Venezuelan Government to nationalize this link in the Venezuelan transportation system, since this would, in accordance with Resolution VII of the Washington Conference,69 result in eliminating from the economy of Venezuela interests inimical to the security of Venezuela and of the hemisphere.

In as much as the Venezuelan Government recognizes that the railroad is beneficially owned by Germans now located in Germany, the Venezuelan Government should be willing, in accordance with paragraph (d) of Resolution VII and in order to protect the security of Venezuela and of the hemisphere, to immobilize completely for the duration of the war any payments made to the Spanish agents of the controlling German interests.

Furthermore, in accordance with paragraph (b) of Resolution VII, the Venezuelan Government should be willing to take appropriate steps to remove undesirable officers and employees from the staff of the railroad, and to block the severance payments to which they may be entitled. It is recognized that some difficulties may be encountered in connection with replacement of undesirable technical personnel. However, it is believed that satisfactory measures can be worked out by the Venezuelan Government in consultation with the Embassy.

As you know, it is the policy of this Government, in so far as it is consistent with the broad requirements of hemispheric defense, to furnish materials essential to the maintenance of the vital public utilities of the other American republics. Accordingly, you may assure [Page 821] the Venezuelan Government that, if the payments to the Spanish agents are made in funds blocked for the duration of the war, and if appropriate steps are taken with respect to undesirable personnel, any application for the export of supplies necessary to the maintenance of the railroad will be promptly and sympathetically considered in the light of similar requirements by other comparably vital enterprises which are free from Axis influence.

However, if, as indicated in the Embassy’s despatch, it is not proposed to block the proceeds of the sale, and the sale will therefore result in making available free credits to the German owners, it is the Department’s view that the transaction would be prejudicial to hemispheric security. The danger would, of course, be aggravated if payment were made in Spanish or Swiss currency. The Department understands that in discussions with the Venezuelan authorities concerning the problem raised by the German ownership and control of this railroad, the Embassy has repeatedly urged that the proceeds of any sale should be effectively blocked, and it is felt that any recession from this position would undermine all future attempts to stimulate the implementation of the Washington resolutions by the Venezuelan Government with a view to remedying the existing deficiencies in Venezuelan control measures. These deficiencies have, as you know, been a source of grave concern to the Department. Accordingly, it appears highly desirable that the Embassy maintain its position with respect to the blocking of the funds in the present case.

You will note from the Venezuelan memorandum that the Venezuelan Government apparently feels that two problems would be raised by any taking over of the railroad other than by voluntary transfer: (1) the problem of adequate legal authority; and (2) the possibility that the valuation of the railroad by a board of experts, which apparently would be required in connection with a forced sale, might be considerably higher than the price at which the railroad is now being offered.

If a forced sale is required to secure blocking of the proceeds, and if the issue of confiscation is raised by the Venezuelan authorities, it would appear desirable discreetly to point out that confiscation is not necessary in order for Venezuela to eliminate the Axis interests in fulfillment of her inter-American commitments, since a forced transfer with blocking of compensation would be adequate, and would not constitute confiscation. In this connection you may wish to inquire whether Article 4 of Decree No. 93, promulgated on May 7, 1942, which authorizes the requisitioning of Venezuelan railroads when such action is necessary in the interest of that nation’s transportation, does not afford an adequate legal basis for a forced transfer. If it does [Page 822] not, you may wish to suggest the desirability of a new enabling decree pursuant to Article 36 of the Venezuelan Constitution.70

With respect to the possibility that a forced transfer of the railroad (in proceedings comparable to those taken against the German and Italian ships to which reference is made in the memorandum) might involve greater costs, it would appear desirable to inquire whether, under Venezuelan law, the price at which the owners were willing to sell voluntarily would not be the best evidence of the value of the railroad, and, therefore, the maximum amount of compensation which would be allowed in legal proceedings.

You may also wish to consider the desirability of suggesting to the Venezuelan Government that in view of the character of this railroad’s ownership and the danger inherent therein to the security of Venezuela and of the hemisphere, this Government is prepared to assist the Venezuelan Government to avoid excessive payment on behalf of the Axis interests by including the railroad in the Proclaimed List. Such action would probably drive down the value of the railroad in any legal proceedings incident to a forced sale. Moreover, the listing of the railroad would strengthen the legal basis for a forced sale by making it clear that the supplies essential to continuance of service would not be furnished by the United States, In this connection, the Department recognizes the practical difficulties that might be occasioned by listing, and suggests that listing be proposed only in aid of the Venezuelan desire to nationalize the railroad on terms most advantageous to the Venezuelan Government, Any listing would, of course, have to be synchronized with legal proceedings designed to effect the forced transfer of the railroad. It would assist the Department in dealing with this problem if you would indicate whether the railroad presently carries materials required by our war effort.

With reference to the statement in the Venezuelan memorandum that the railroad is “property of a company which is a national of a country like Spain which is not only not at war with the Allied Nations, but which maintains normal relations with Venezuela”, the Department invites your attention to the Censorship Intercept forwarded to the Embassy on January 14, 1943,71 which discloses the fact that the Spanish Diplomatic Pouch has been used to keep the Venezuelan railroad in communication with Berlin.

Finally, you may wish to evidence the Department’s sympathetic interest in the maintenance of this vital public utility by inquiring whether the schedule of materials and spare parts essential for repair [Page 823] and maintenance submitted by the Gran Ferrocarril de Venezuela to the Ministry of Fomento, a copy of which, was enclosed in the Embassy’s report no. 34, under date of September 18, 1942,72 is still current. In the event that a satisfactory plan is worked out, a current statement of the minimum, absolutely essential requirements will be helpful in expediting any assistance which the Department is able to give.

The attitude of the Department toward the proposed transfer will also be set forth in conversations which will be held with representatives of the Venezuelan Embassy in Washington.

Very truly yours,

For the Secretary of State:
Dean Acheson
  1. Neither printed.
  2. For text of the resolution, see Pan American Union, Congress and Conference Series No. 39: Final Act of the Inter-American Conference on Systems of Economic and Financial Control (Washington, 1942). For correspondence on this Conference, held June 30–July 10, 1942, see Foreign Relations, 1942, vol. v, pp. 58 ff.
  3. This provides for a limitation on the suspending of civil guarantees except in defense of the nation.
  4. Not found in Department files.
  5. Not printed.