835.516/9–2849
Memorandum by Mr. T. R. Martin of the Division of River Plate Affairs to the Assistant Chief of the Division of River Plate Affairs (Atwood)
Subject: Argentine Exchange Situation. (Memorandum, September 20, Pierrot to Miller1)
The “impression regarding favorable progress” in Argentina mentioned by Mr. Pierrot arose of course from two major developments: The Argentine Government has reduced its dollar obligations by more than 100 million dollars in 1949, and has committed itself publicly and officially to a definite and seemingly reasonable program for the liquidation of the remainder of the indebtedness. Since this arrangement may require eight years for completion, the current joint discussions of Argentina’s economic problems may develop a program for rapid liquidation of this indebtedness. I am hopeful that the indebtedness can be funded in some manner.
The particular difficulty of the foreign banks maintaining branches in Buenos Aires is well known to you. Other banks having agencies rather than branches in Argentina unilaterally diverted Argentina’s normal dollar earnings to the satisfaction of their own claims. By this means they rid themselves of credits amounting to some 95 million dollars. Although these banks seized the opportunity to assist themselves and can hardly be criticized for trying to correct by arbitrary means a situation arbitrarily created, their action placed the Argentine Government in a position of discrimination against the banks with branches, as well as resulted in a transfer of Argentina’s dollar accounts to the Federal Reserve. As I understand the situation, the diversion of the funds was possible not because the Central Bank could exert no control but because it had not attempted to do so. I assume that under present circumstances such action is impossible.
The estimate of “outstanding commercial credits” at 150 million dollars is a little puzzling. If the term “commercial, credits” is interpreted to mean total dollar obligations arising from trade transactions, the current figure is variously estimated from 143 million to 210 million dollars. The expression “commercial credits” has been used to describe the letter of credit debt to US banks which is estimated at 42 to 43 million dollars. It is not clear Whether the expression as used by Mr. Pierrot’s friends was intended to describe all commercial obligations to US creditors, or possibly all commercial credits in the [Page 513] technical sense owed not only to US creditors but also to the Royal Bank of Canada and the Bank of London and South America.
We have reason to believe that the Argentine Government through the unilateral action of certain banks paid off dollar obligations amounting to some 95 million dollars. Since May the Argentine Government has paid off some 11.4 million dollars in credits in accordance with its commitment to allocate 20 percent of its dollar earnings for this purpose. Obviously the experience of any one institution is not a precise criterion by which to judge Argentine performance. The Argentine Government is proceeding on a chronological basis. Claims are paid in accordance with the date on which pesos were deposited for a specific remittance. This procedure, like any procedure, has worked some hardship on individual creditors, and also entails a significant disadvantage to the Argentine Government itself in that immediate liquidation of commercial credits in the technical sense would restore Argentina’s bank credit. Argentina is pursuing a course not unlike that followed by Brazil, although in the case of Brazil commercial collections, i.e., debts to exporters, constitute a much larger proportion, and commercial credits a much smaller proportion of the total indebtedness than in the case of Argentina. Thus the banks have less reason to press for liquidation in Brazil than in Argentina. The Argentine Government has in general taken what is usually acknowledged to be a fair approach to a problem which offers no perfect solution.
The chronological procedure has resulted in comparatively small payments to some, of which National City appears to be one, and in complete liquidation of indebtedness for others. An element in the delay has been the unusually small US imports from Argentina during 1949. The recent increase in the percentage of allocation of Argentine dollar earnings from 20 percent to 30 percent may compensate for this decrease in US imports from Argentina, but no allocation has yet been made under the 30 percent commitment. It is reported that some unusually large items are coming up for liquidation in June, one of which may be General Motors. If so, several allocations may be necessary to liquidate a single item, or allocations may be postponed until accumulations permit the liquidation of at least one item.
I believe that the foregoing outlines our understanding of the situation which officials of the National City Bank wish to discuss with Mr. Miller. I presume that the National City Bank is aware that the Embassy approached the Argentine Government concerning their problem as a consequence of Mr. Tewksbury’s telegram No. 125 of February 18.2 I attach a copy of the Embassy’s report (A–139 [Page 514] March 173) which indicates that the Argentine Minister of Finance was sympathetic and hoped to make some adjustment. Since adjustment could not now be made without departing from the chronology to the detriment of other US creditors, unless the Argentine Government is willing to make an adjustment out of its uncommitted 70 percent of its dollar earnings, I believe that we should be cautious in seeking for these banks a special arrangement which might further delay liquidation of Argentine obligations to other US interests.