611.2531/287
Memorandum of Conversation, by the Counselor of Embassy in Chile (Frost)41
Mr. Trueblood and myself last evening visited Señor García, who was attended by Señores Serrano and Gazitúa, to impart to the Foreign Office the Department’s attitude regarding the exchange clause which they had worked out. I had previously given him an idea of [Page 448] the tenor of the Department’s telegram42 by telephone; and he had also just received a visit from the British Ambassador, with whom you had conversed on the subject. (Sir Charles Bentinck was leaving as we entered, and expressed himself briefly to me as very pessimistic and as greatly concerned regarding the future prospects of his negotiations, which as you know are parallel to ours.)
I handed to each of the Chilean officials a transcript of the telegram, although not prepared in such form as to indicate that it followed the actual text received from the Department. Upon reading it Señor García paused for a moment and then said very simply that he could not see any possibility of reaching an arrangement if Chile must give up her compensation trade. Señor Serrano launched into an eloquent exposition on the indispensability of Chile’s exports to Germany. He adverted particularly to the fact that the Chilean growers of lentils, beans and other products would have no advance assurance each year of a market, whereas at present they can count upon the quantities which it is safe for them to produce.
I inquired whether it would not be possible for compensation trade to exist without its being facilitated by the compensation convenios, stating that presumably the German desire to sell merchandise in this market would induce German purchases of Chilean products, even if the Chilean Government did not actively assist in the arrangements. Chile’s trade with Japan and Ecuador is carried on in such a way, with virtual but not formal compensation. Señor García maintained that under the convenios the Chilean Government does not extend any real assistance; as the quantities of the various articles to be exchanged are fixed by Germany and the rate of the blocked mark is fixed by the banks from day to day in accordance with the supplies on hand. He stated that the agreements consisted merely of offers by Germany too advantageous for Chile to refuse, but accompanied with conditions imposed by Germany which Chile could not modify. He felt that if they were given up the Germans would have less confidence in the operation of the system and would therefore cease to provide as large outlets for Chilean commodities as at present.
Señor García was surprised at the Department’s use of the word “discrimination”, as he stated he had been expressly informed during his conferences in the Department last summer that the unilateral nature of the coercion applied by Germany to Chile was understood at Washington. He also mentioned the phrase “diversion of exports”, and stated that the exports to Germany are not diverted by the convenio but rather are created by it, as they would not be made at all if Germany did not arrange for them. With regard to the stabilization by Chile of the export draft rate for the dollar, he said that the [Page 449] Germans have asked Chile to stabilize the blocked mark in the same way, at a point approximating the supply-and-demand rate, in order that its fluctuation might be avoided; but said that Chile prefers not to touch a blocked currency which it regards as abnormal and precarious.
In concluding the interview I suggested that after two or three days of reflection we confer again, with your presence, and endeavor to develop new suggestions which could be submitted to the Department. He replied that of course he is always ready to discuss the matter but that he understood from the Department’s telegram that Washington will now in its turn present a proposal.
Today Mr. Trueblood has had a telephone conversation with Gazitúa, who states that García is anxious to save Chile’s agricultural exports, whose principal takers are Germany and the compensation countries. It seems to me that a statement from the Department in simple and concrete terms as to just what it wishes Chile to do would be very helpful at the present juncture.