840.51/Frozen Credits/9810

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

No. 4119

Sir: I have the honor to refer to Department’s Airgram No. A–418 dated March 4, 1943, 8 p.m. relative to the informal request of the Venezuelan Embassy for the views of the Department on the contemplated forced conversion of Axis frozen assets in Venezuelan Banks into Venezuelan Government Bonds.

Several of the terms used in the request are confusing to the Embassy because

—“Axis frozen assets in Venezuelan Banks” can mean either those funds controlled under the Venezuelan Executive Decrees of December 11 and 16, 1941, with which “normal and legitimate” transactions are freely permitted, or “specially blocked accounts” which are those accounts specially blocked as a result of the Consultative Procedure (See page 4 of Embassy Despatch No. 3690 of December 28, 1942),76 which funds the Embassy has been told by the Consultative Commission and the Superintendent of Banks are absolutely immobilized in so far as the beneficiary is concerned.
—The term “forced conversion” is not understood in that the Venezuelan Authorities have indicated that although they can control the blocking of funds they have no authority under existing Decrees to oblige the investment thereof in any particular way.

The matter of investing Axis assets in Venezuelan Treasury Bills (Letras del Tesoro) first came to the attention of the Embassy when two Germans whose funds are controlled by the Executive Decrees [Page 826] under reference requested of the Minister of Finance (Hacienda) that these funds be invested in Treasury bills. The matter was referred to the Venezuelan Consultative Commission and, when raised in consultation with the Representatives of the Embassy, the Commission itself determined that this should not be permitted. (Reference is made to page 2 of the enclosure No. 2 to Embassy Despatch No. 3494 dated November 21, 1942.)77 It is understood that Venezuela has not found it necessary to raise funds by the issuance of Government securities for some fifty years until the issue of Bs. 4,500,000. was sold in November, 1942. The inquiry made of the Ministry of Hacienda, hereinabove referred to, was with regard to this issue.

In February, 1943, a second issue in the amount of Bs. 5,000,000. was sold and about that time the Superintendent of Banks, Dr. Ernesto G. Permuy, approached the office of the Commercial Attaché to this Embassy and explained that one of the purposes of issuing Treasury bills was to combat the inflationary trend of Venezuelan currency, hence the Government preferred that the issue be purchased by the public generally rather than by commercial banks in Venezuela, and stated that all Proclaimed List firms of any financial significance, in addition to having withdrawn considerable cash from their bank deposits just prior to the effective date of the Venezuelan Decrees, carried on their businesses on a strictly cash basis and maintained considerable funds in cash in their respective safes and cash drawers. He added that he had exerted his best efforts by persuasion to get these funds deposited in local banks but his efforts had proven fruitless in that he did not have the legal authority to oblige it and the parties concerned refused to comply with his requests. He felt, however, that these firms might be inclined to invest a part of these funds in Treasury bills and he requested the attitude of the American Authorities with regard thereto. It is known to be a fact that these firms maintain considerable amounts in Venezuelan currency in their cash drawers. The recent balance sheet of Frey & Company (PL) shows a cash balance of Bs. 250,000.

. . . . . . . . . . . . . .

It is understood that the Commercial Banks in Venezuela have offered to purchase the entire output of Treasury bills but, as hereinabove stated, it is preferred that the general public make such purchases. Although it has been made public in each instance that the issue was over-subscribed, such does not truly reflect the facts in that of each issue the Government was obliged to sell to Commercial Banks from Bs. 1,000,000. to Bs. 1,500,000. worth. This has been partially explained in that the general public in Venezuela is not educated in [Page 827] the matter of investing in Government securities. Therefore, with regard to item numbered (2) on relevant considerations in the Airgram under reference, although it should not be necessary for the financing of the bill issues to utilize Axis frozen assets, the Venezuelan Government would probably welcome this possibility in order to reduce that part of the issue purchased by Commercial Banks.

With regard to item numbered (3) on relevant considerations of the possibility that increased revenue to listed parties, even though blocked, would increase their willingness to finance undesirable activities with their free funds, any expression by the Embassy would be purely conjectural, in that all Venezuelan firms of any significance included in the Proclaimed List have sufficient free funds, so that any such inducement by reason of permission to invest in these Government bills probably would be insignificant.

. . . . . . . . . . . . . .

It is the Embassy’s considered opinion that no concession should be made on this score unless the Venezuelan control of undesirables is strengthened. It is recalled that the Venezuelan Control Decrees were enacted prior to the Conferences at Rio de Janeiro and Washington, and although the law as written was considered satisfactory, its administration is quite ineffective. If the means proposed can be used to oblige the investment of cash held by undesirable persons and firms in Venezuelan Treasury bills and the interest accruing thereon, as well as the principal collected upon maturity, is effectively controlled by the Venezuelan Government, the proposal may well be given serious consideration. If the proposal is meant to include only those funds specially blocked as a result of the Consultative procedure, it is suggested that the Department should refuse its approval. If the proposal has reference to those funds controlled under the Decrees of December 11 and 16, 1941, which is doubted, it is suggested likewise that the proposal be considered unfavorably.

This request for the Department’s views may well lend itself to a reply forcefully suggesting a strengthening of local Controls which by a considerable number of important people here is believed to be all that is necessary for the Venezuelan Government to aggressively approach the problem of Economic Warfare. The very fact that the views of the Department are requested in this regard lends credence to this belief.

Respectfully yours,

Frank P. Corrigan
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