740.34112 RP/8
The Ambassador in Paraguay ( Frost ) to the Secretary of State
[Received February 29.]
Sir: I have the honor to inform the Department that developments which have taken place during the last few weeks both here and in Buenos Aires have seriously complicated the situation of the Asunción branch of the Banco Germánico to the extent that all accounts belonging to Axis interests have now been blocked and it appears very likely that the bank itself will be liquidated as the responsible Paraguayan Government officials now readily admit that the bank is completely and hopelessly insolvent.…
. . . . . . . . . . . . . .
At the present time it appears to be a foregone conclusion that the Paraguayan Government will liquidate the branch of the Banco Germánico in Asunción. According to the commercial code of Paraguay, any organization which has lost seventy-five per cent of its capital can be declared bankrupt, and in view of the action taken by the Buenos Aires headquarters in canceling the 1,000,000 Argentine pesos capital of the Asunción branch, to all intents and purposes its entire capital structure has been dissolved. The Buenos Aires headquarters of the bank has also refused to return to the Asunción branch a deposit in Argentine currency maintained by the branch in Buenos Aires amounting to 122,847 Argentine pesos. In addition to these elements in the picture, as has been mentioned previously, the local branch of the German Bank has refused to repay to the bank of the Republic certain deposits in excess of the value of 500,000 Argentine pesos, even though the request by the Bank of the Republic presumed a repayment of only 400,000 Argentine pesos. In as much as the policy of the Asunción branch appears to be dictated in its entirety by its Buenos Aires headquarters with one specific purpose in mind, and that is, to prevent the Paraguayan interventor from obtaining possession of any of the bank’s assets which are beyond his immediate control, it is not surprising that the interventor has come to the conclusion that the only course now open is to make every effort to guard the interests of the bank’s depositors who are all at least resident in Paraguay.
It is understood that the Banco Germánico in Asunción which is still carrying Paraguayan Government Treasury Letters to a value of approximately 550,000 Argentine pesos, has requested that these Treasury Letters be taken over by the Bank of the Republic (for the history of these Treasury Letters reference is made to the Embassy’s dispatch [Page 1484] No. 858, dated March 15, 194355). By assuming charge of these Treasury Letters the Bank of the Republic will be taking over a further Government obligation and will accordingly be assuming a further financial responsibility for the State. Of even more immediate importance is the fact that by the delivery of these Treasury Letters the Banco Germánico, presumably, will have delivered to the Bank of the Republic a value approximating the equivalent of the deposits of the Bank of the Republic, which deposits it has been instructed by its Buenos Aires headquarters not to repay.
In the conclusion of the report of the interventor of the Banco Germánico in Asunción to the Ministry of Interior and Justice, it is stated that the Asunción branch of the Banco Germánico of South America lost during the years 1942 and 1943, a sum total of 111,006 Argentine pesos and has as well had its capital wiped out and has further refused to make restitution on certain deposits. It is accordingly suggested that under the conditions of Article 369 of the Paraguayan commercial code, the bank should be judged insolvent and its liquidation ipso-jure should be announced when the Government so chooses. It is further suggested that the Paraguayan authority which is to make this liquidation, presumably the Bank of the Republic of Paraguay, may be able to undertake legal steps in Buenos Aires against the headquarters of the Banco Germánico demanding the restitution, not only of the capital, but also the deposits of the Paraguayan branch which are now held in Argentina.
As the Department knows, the Commercial Attaché and myself have been rather patiently working towards the ultimate goal of the liquidation of the Asunción branch of the Banco Germánico for well over a year. The actual intervention which took place on October 2, 1943, was the result of the Embassy’s efforts and can be considered as a gesture on the part of the Paraguayan authorities to meet the obligations assumed at the time of the Rio de Janeiro conference,56 as well as the recommendations approved at the Washington, D.C. meeting in 1942.57 The Ministers of Foreign Affairs, Interior and Justice,58 and Finance all informed me that they hoped that the decisiveness of this action would be noted (to their credit). There is no question that the intervention has been conducted on a high plane of morality and the interventor, Mr. Pablo Bergeman, deserves much [Page 1485] credit for his astuteness and his impartial attitude towards the bank. However, it is also generally admitted that when the Paraguayan Government consented to the intervention of the bank none of the responsible officials had any idea that an examination of the bank would uncover the irregularities which have now been discovered. It is perfectly true that the rupture of relations with the Axis powers, by Argentina and the frantic efforts of the Buenos Aires headquarters of the Banco Germánico to guard its assets have emphasized and crystallized these practices. However, the policy under which the Paraguayan branch of the Banco Germánico has been operating has been established for many years and for the first time the Paraguayan authorities now appear to be fully alive to the status of this bank and its policy towards the country and its inhabitants. The managers of the bank, both in Asunción and in Buenos Aires, now are being accused of bad faith and even intent to defraud, and it certainly appears that the life of the Asunción branch can be definitely numbered in days.
While the final blocking of the funds in the bank belonging to Axis persons or interests is confidential, at the moment there is no doubt that general knowledge regarding this development will gradually pervade throughout the city. The almost inevitable liquidation of the bank while it finds its origin in the bank’s intervention, may, as a matter of policy, be considered by the Paraguayan authorities as a matter apart. In other words, the liquidation of the bank will probably be announced as a consequence of the bank’s situation in this market and its reprehensible practices as such rather than as a conclusion connected with the intervention which is generally known as having been brought about by this mission.
Respectfully yours,
- Not printed.↩
- For texts of the resolutions of this Conference, see Pan American Union, Congress and Conference Series No. 36: Report on the Third Meeting of the Ministers of Foreign Affairs of the American Republics, Rio de Janeiro, January 15–28, 1942 (Washington, 1942), or Department of State Bulletin, February 7, 1942, pp. 117–141.↩
- For texts of these recommendations, see Pan American Union, Congress and Conference Series No. 39: Final Act of the Inter-American Conference on Systems of Economic and Financial Control, June 30–July 10, 1942 (Washington, 1942).↩
- Col. Amancio Pampliega Peña, Minister of Interior and Justice.↩