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

No. 9457

Sir: Before departing on an extended trip to New York, London and The Hague two days ago, Shell Group head John Loudon visited Junta President Betancourt.

[Page 1354]

Loudon told the Junta President that he would discuss his 1947 budget with his Board of Directors, and asked whether the President had anything which might interest the latter. To this the answer was that the directors might be informed that they could expect a new tax.

The President then called in Minister of Fomento Pérez Alfonso, who he said was his principal adviser on economic and financial matters. Pérez Alfonso immediately reminded Loudon that producers are now getting 35 cents more per barrel for their oil while the Government is receiving only 6 cents. This condition, he contends, is eminently unfair, and the Government therefore had decided to obtain a greater share through taxes.

Loudon was then told that when the Constituent Assembly meets in December it will be “asked” to pass appropriate tax legislation. It was added that by advising Loudon of the impending additional burden at this time it could not be contended that when the tax came it would be any surprise, as had been the case with Decree 112, which, announced just before midnight on December 31, 1945, unexpectedly reduced profits by approximately $30,000,000.

Although, due to the haste with which he recounted the substance of his interview with Betancourt and Pérez Alfonso, Loudon failed to explain how he arrived at the conclusion, he stated that apparently the two Government officials when they report to the Constituent Assembly will consider that they are then and there relieved from any promises made previously, as, for example, the one that the Decree 112 extraordinary tax levy was a one-time one.

Apprised by Loudon of the tenor of his interview with Betancourt and Pérez Alfonso, Creole President Proudfit77 called upon Pérez Alfonso at once and expressed astonishment at the development. In the course of his remarks, Proudfit reportedly reminded the Minister of the promise made in connection with the Decree 112 tax and said that in any case his company’s 1947 budget of $140,000,000 would strain its resources, adding that if any heavier tax than those already anticipated had to be paid the company would have to go out and borrow. He remarked further that capital is fluid and often timid, that Decree 112 had seriously affected bankers’ confidence in Venezuela, that an additional tax might damage confidence to the further extent that money to pay the tax would not be forthcoming; and he terminated by indicating that it might be necessary to reduce the company’s budget, a fact which could have unfortunate repercussions in various circles.

Proudfit said that he left Pérez Alfonso stuttering. After communicating [Page 1355] with his New York headquarters he then departed for Miami, for a conference with company directors who planned to fly down from New York to consider this latest development.

While the news is unwelcome to the industry, sight must not be lost of the fact that Creole’s earnings for the year will be in the neighborhood of $100,000,000, and those of the Shell group proportionately large. It must not be forgotten that an excess profits tax was talked about as far back as May, 1945, during the Medina administration. Nor should the possibility be overlooked that, had a constitutional legislature met earlier this year, some tax legislation might have been passed. So, despite industry displeasure over the prospects of this new burden, and despite the feeling in the same quarter that Betancourt is treating a promise lightly, it must be conceded that the Government’s attitude in the face of the large 1945 earnings is not entirely unexplainable. As one old oil man said, “Put a saucer of cream in front of any cat, even a fat one, and just try to keep him away from it!”

The new tax, it is surmised, will be so designed that the burden thereof will fall practically wholly upon the big producers, perhaps through high rates on earnings above, say, Bs. 30,000,000.

Respectfully yours,

Frank P. Corrigan
  1. Arthur T. Proudfit, President of Creole Petroleum Company of Venezuela, subsidiary of Standard Oil Company of New Jersey.