Foreign Relations of the United States Diplomatic Papers, 1935, The American Republics, Volume IV

833.5151/348

The Consul General at Montevideo (Reed) to the Secretary of State

No. 697

Montevideo, September 24, 1935.
[Received October 2.]

Sir: I have the honor to acknowledge the receipt of the Department’s airmail instruction of September 10, 1935²⁴ directing me to report by airmail whether funds on deposit in Uruguay in payment of imports which are blocked because of the insufficiency of foreign exchange can be withdrawn by agreement between the foreign exporter and the Uruguayan importer, that is, whether the American owner of blocked funds in Uruguay has the option of transferring his deposit through the free market, or of accepting the “Amortizable Obligations” offered by the Uruguayan Government in satisfaction of deferred exchange. The Department also refers to the surcharges to be added to the official exchange rates in the case of liquidation by means of the Second Series of “Amortizable Obligations”, and inquires whether the Uruguayan importer is required to put up additional funds to pay the equivalent of the surcharge or whether the dollar claim of the American exporter is reduced by the amount of the surcharge.

The Autonomous Amortization Bureau has been consulted in regard to the points raised by the Department and has stated as follows in reply to the Department’s two questions:

• First. Foreign owners of blocked funds in Uruguay have the option of transferring their deposits through the free market or of accepting “Amortizable Obligations”. If neither of these possibilities is acceptable to the creditor at the present time, the funds may, of course, be left on deposit here or invested in Uruguay. The optional character of the liquidation by means of “Amortizable Obligations” is set forth in Article 9 of the original law governing the emission of “Amortizable Obligations” (July 15, 1932)²⁵ which reads, in part: “The bonds shall be applied exclusively to the settlement of liabilities in foreign currency outstanding at the date of promulgation of the present Act, in conformity with Clause 1 of same, its application being optional for creditors of trade obligations, holders or depositors”. The law of November 9, 1934,²⁶ in referring to the Second Issue of “Amortizable Obligations” states, in Article 9, that the regulations made by the law of October 27, 1932,²⁷ in regard to the First Issue remain in force for commercial obligations, for which payment was pending on the date of publication of the present law (November 9, 1934).
• Second. With respect to the surcharges to be added to the official exchange rate in the case of liquidation by means of the Second Series of “Amortizable Obligations”, the Autonomous Amortization Bureau states that the Uruguayan importer is required to put up the additional funds necessary to pay the equivalent of the surcharges, Article 16 of the regulations governing this Second Series stating “La emisión de ‘Obligaciones’ se hará contra entrega del equivalente en pesos uruguayos, moneda nacional, que resulte de la aplicación de la siguiente escala de porcentajes de recargo,—establecida según lo dispuesto por la ley de acuerdo con el Banco de la República,—a los tipos de cambio que se transcriben a continuación: Escala de Porcentajes de Recargo” etc. (translation, made in Consulate General “The emission of ‘Obligations’ shall be against delivery of the equivalent in Uruguayan pesos, national money, which results from the application of the following scale of percentages of surcharges,—established according to the provisions of the law, in agreement with the Bank of the Republic—at the rates of exchange given herewith: Table of Surcharges” etc.)

It should be pointed out however, that there are cases in which the foreign creditor has consented to the conversion of his credit to a peso credit, and accepted a deposit in pesos as constituting payment in full. In such a case, it would not be possible to force the Uruguayan importer to put up additional funds and the American creditor could only obtain “Amortizable Obligations” to the amount of the peso deposit.

Respectfully yours,

Leslie E. Reed

24. Not printed.
25. Registro Nacional de Leyes de la Republica Oriental del Uruguay, 1932 (Montevideo, Imprenta Nacional, 1932), p. 390.
26. Ibid., 1934, p. 1479.
27. Ibid., 1932, p. 667; this law prohibited protests under certain circumstances of the nonpayment of drafts in foreign currencies. Translation in Department files under 833.51/501.