740.00112A E.W. 1939/36572

The Ambassador in Guatemala (Long) to the Secretary of State

No. 1037

Sir: I have the honor to refer to the Department’s Instruction No. 416 of February 28, 1944, and Telegram No. 214 of April 14, 1 p.m., regarding disposal of coffee produced on Proclaimed List fincas52 in Guatemala.

[Page 1155]

It will be recalled that during the course of negotiations for the transfer to the Guatemalan Government of the CAPCO properties,53 it was stated by the Guatemalan Government that it intended to proceed promptly with expropriation, under a plan whereby the German owners would have to seek compensation from their own Government. As the Department has been informed in previous reports from this Embassy, the present policy of the Guatemalan Government toward expropriation of enemy owned properties, as expressed informally to members of the Embassy by the President54 and other officials of the Guatemalan Government, is to await the termination of the war before inaugurating any general expropriation policy.

No clear explanation of the reason for the change in this policy has been given by the Guatemalan Government nor has the Embassy been in a position to press for an explanation. It appears obvious, however, that the income which the Guatemalan Government is obtaining from the special emergency or war tax of $5 per quintal on coffee and varying amounts on other products produced on intervened fincas, constitutes the logical explanation for the decision to defer expropriation until after the war.

Under existing Guatemalan legislation the removal of property from the Proclaimed List does away with any form of intervention or control by the Guatemalan authorities and consequently deprives the Guatemalan Government of the revenues derived from the special emergency taxation. The only method by which the Government might continue to collect this revenue would be for the Government itself to continue ownership and operation of the properties in question. While the Government has taken over and operates the properties obtained from CAPCO, there has been no indication that it is prepared to assume ownership and operation of all German-owned properties.

Support to this explanation of the present policy of the Guatemalan Government is found in the action of the Government in expropriating other German-owned properties which did not produce exportable products subject to the emergency taxation. The principal such property is the Verapaz Railway which, as reported in the Embassy’s despatch No. 546 of October 25, 1943,55 was expropriated by the Government. In addition, expropriation proceedings are still under way with regard to the wheat and rice mills referred to in the Embassy’s despatch No. 714 of December 31, 1943.55 It would appear [Page 1156] that the Government does not hesitate to expropriate non-revenue producing German-owned properties.

As the Department is aware, the present system of intervention by the Banco Central has the obvious advantage to us that it enables us to follow closely financial operations concerning intervened properties. The Embassy continues to receive from the Banco Central statistical information regarding the profits accruing to the German owners and deposited in blocked accounts at the Bank, and has the assurance of the Guatemalan Government that such reports will be furnished at any time they may be required. Furthermore, the retention on the Proclaimed List of such properties gives us absolute control over transfer of ownership. We have concurred in the sale of a few intervened properties and, in agreement with the Guatemalan authorities, have removed them from the Proclaimed List. In a number of other instances, however, where suspicious circumstances surrounded the transaction or doubts were entertained with regard to the sympathies of the prospective purchaser, we have taken the position that we would not remove the properties from the Proclaimed List in the event of sale. Obviously, if the Guatemalan Government should inaugurate a general expropriation program, it would be difficult for us to continue to enforce our control in the matter of ownership.

The foregoing observations suggest that the Department might wish to review its policy regarding the desirability at this time of endeavoring to induce the Guatemalan Government to inaugurate a general expropriation program.

With regard to the proposed purchase by the War Department of coffee produced on Proclaimed List fincas, it appears obvious to the Embassy that it could not in any event, even should we consider such a course desirable, be used as a lever to induce expropriation or nationalization of Proclaimed List properties as suggested in the Department’s telegram under reference. If the War Department were disposed to cooperate by refusing to purchase coffee from Proclaimed List fincas, such a policy might force this Government to proceed to expropriation. It does not appear to the Embassy, however, that a contrary policy on the part of the War Department—namely, an indication of a desire to purchase the coffee—would have any influence in bringing the Guatemalan Government to adopt expropriation which, if generally applied, would deprive it of revenue amounting to approximately one million dollars per annum.

As has been recommended in connection with negotiations by the War Department for the purchase of Proclaimed List coffee from the two previous crops, it is desired to renew the recommendation that the War Department be licensed by the Treasury Department to purchase the coffee direct and that it send a qualified representative from [Page 1157] the staff of the Quarter Master Corps to Guatemala for this purpose. The Embassy could place such a representative in contact with the proper authorities of the Guatemalan Government. Any technical advice or assistance which might be required could undoubtedly be furnished either by the Guatemalan Government itself or by a reputable American coffee firm, such as Grace & Company, or Agendas Unidas. It is recommended that no private coffee merchant be authorized by the War Department to purchase coffee on its behalf. Guatemalan law requires such coffee to be sold at public auction to the highest bidder. If the War Department itself is the only entity licensed to purchase the coffee, it is believed that no difficulty would be encountered in arranging for sale of the coffee on a negotiated basis.

At the time of initiating negotiations for the sale of this coffee, we could inform the Guatemalan Government that we concurred in the transaction on the grounds that we were confident that the Government would continue the effective operation of its present intervention system and would continue to keep us fully informed of the details of its operation. If so instructed by the Department, we could also premise our approval on the grounds that we understand that the Guatemalan Government intended to proceed with expropriation of such properties upon the termination of present hostilities.

In conclusion, it is not apparent wherein we could induce the Guatemalan Government to give up part or all of its present revenues of approximately one million dollars per annum by a proposal to purchase Proclaimed List coffee, nor is it believed that it would be to our advantage to lose the present very effective control which we have over the ownership of such property.

In response to the last paragraph of the Department’s telegram under reference, it is recommended that negotiations for the purchase of coffee be conducted solely by officials of the War Department to the exclusion of any private individual or commercial firms.

Respectfully yours,

Boaz Long
  1. Plantations.
  2. The Central American Plantations Corporation properties were deleted from the Proclaimed List in 1942 when they were acquired by the Guatemalan Government pursuant to an informal agreement with the United States signed in Washington December 11, 1942, not printed (740.00113 European War 1939–Central American Plantations Corporation/1)
  3. Jorge Ubico.
  4. Not printed.
  5. Not printed.