740.31112A/1–746

The Chargé in Venezuela (Dawson) to the Secretary of State

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18. ReDeptel 5, Jan 4, 7 p.m. Embassy appreciates viewpoint of achieving “economic security” and in each plan of reorganization [Page 1323]presented believes this will be obtained insofar as is politically and operationally possible at this date. The Dept is undoubtedly aware that since the termination of hostilities, there has occurred here as elsewhere, a profound change in public psychology. The Venezuelan public considers that war is over. PL firms that have survived the effect of blacklisting to date are strong, and some of them have made ample profits during last 12 months. With relaxation of export licensing and corollary controls in US, it is becoming manifestly impossible to police trade through documentary controls and the whole economic warfare front is on point of deteriorating. PL firms whose reorganization is not forced now will eventually feel that they outwitted us and have won by default.

Embassy’s positive view is that by taking action now and using firm tone (which is in part bluff inasmuch as we can see that the tide is turning) we can still salvage a decisive victory.

We can in most cases relegate PL principals to minority financial position. In the cases of Zingg and Gathman we must be practical and realize we cannot break those large family holdings nor can we force dissolution of firms; truth is they can survive indefinitely as Venezuelan citizens. We can however sanitate those firms by introduction friendly control element, humble them greatly by forcing their family names out of market and bring them under supervisory control through standard undertaking. This will give us in eyes of Venezuelan public a moral victory in addition to achieving far greater economic security than we have under present situation.

Past difficulty of forcing reorganizations was in part owing inability find a blanket formula. No two cases are similar here and each needs special handling. Through our concentrated efforts and good offices Foreign Minister and Venezuelan commission we have at long last reached practicable basis of agreement in each case. Embassy is prepared to clear up those situations and awaits only authorization to proceed.

Dawson