840.51 Frozen Credits/10536
The Chargé in Venezuela (Flack) to the Secretary of State
[Received May 29.]
Sir: I have the honor to refer to the Department’s Instruction No. 1496 dated November 10, 1942, with which was transmitted a study93 of the extent to which the Venezuelan decrees governing enemy: property and activity comply with the Resolutions adopted by the Inter-American Conference on Systems of Economic and Financial Control held in Washington June 30–July 10, 1942, prepared by Mr. Covey T. Oliver.94 The Embassy finds this excellent study to be very accurate and helpful. Relative to the desirability and likelihood of obtaining changes in Venezuelan law of the sort needed to bring it more completely into harmony with the Conference Resolutions, reference is made to Embassy Despatch No. 3690 dated December 28, 1942;95 since that time there has been no legislation nor Executive decrees in this regard and the administration of the Venezuelan Executive decrees of December 11 and 16, 1941, remains as unsatisfactory and ineffective as heretofore reported. A brief review of some of the salient Cases in Venezuela, in substantiation of the foregoing statements, is given below:
Granting of Normal Credits and Banking Facilities to Proclaimed List Nationals by Commercial Banks:
Letter from Mr. Groves to Superintendent of Banks dated March 16, 1943, suggested that such banking facilities be terminated. (See Embassy Despatch No. 4160 dated March 17, 1943.) This matter was promptly but unofficially brought to the attention of the Banking Council by the Superintendent of Banks, because the Federal Executive preferred not to give official recognition to any action taken by the banks as a result of the communication. Refusal of official cognizance to this situation, but fear of the consequences that might attend inaction on their own part, led the banks to sign an agreement between [Page 839] themselves to terminate all commercial banking relations with Proclaimed List Nationals. The Federal Executive in an indirect way has recognized the banks’ action directed against the Proclaimed List firms by authorizing the Banco Central, the Banco Obrero and the Banco Agríeola y Pecuario—all Governmental institutions—to become signatories to the agreement.
Although some of the banks have indicated that prior to the communication from the Embassy, they had undertaken to reduce their commercial banking transactions with Proclaimed List Nationals, the ever present sanctions of curbing their banking relations with New York banks is undoubtedly the controlling influence in what may be accomplished. Under the agreement signed by all banks, their credit facilities to Proclaimed List Nationals will be gradually reduced over a period of nine months.
The banks reached an agreement in principle on this question over a month ago, nevertheless the line credits extended to the Proclaimed List Nationals have not yet been reduced one centime, the banks choosing to await actual signing of the contract before beginning to act.
This matter of liberal granting of commercial credits to Proclaimed List Nationals, when considered in the light of specially blocking of accounts, more specifically explained on page 4 of Embassy Despatch No. 3690 of December 28, 1942, creates a rather curious situation; for, although the Embassy is assured that funds paid into “a specially blocked account” are absolutely immobilized insofar as the beneficiary is concerned, the bank, of course, is permitted to use the funds as it sees fit. And although those particular funds as such may not be available to the Proclaimed List National, he is, in most instances, permitted a liberal credit line by the bank without security. For example, the Zinggs have blocked funds in the amount of Bs. 2,856,000 deposited in the following commercial banks of Venezuela: Banco de Venezuela, Banco Mercantíl y Agríeola, Banco Caracas and Banco Venezolano de Crédito and they enjoy an unsecured commercial credit line from these several banks in the amount of approximately Bs. 2,000,000.
It is interesting to note that all blocking orders provide that funds are blocked for six month periods, automatically extended until the termination of the war or until the Federal, Executive expressly authorizes that said funds be devoted to some other use; and that commercial banks, notwithstanding the belief harbored by some that Proclaimed List firms will eventually be forced to close, continue to lend them unsecured credits so that it is only logical to conclude that these commercial banks would have some reason to believe that in the event that a Proclaimed List National were unable to meet his obligation to them, they could prevail upon the Federal Executive to [Page 840] permit an offset of (blocked) credit and debit. To minimize this possibility, the Embassy has insistently requested that specially blocked accounts be maintained in the Banco Central de Venezuela, but has been unsuccessful in its efforts because of the attitude assumed by the recently resigned Minister of Hacienda (Finance),96 notwithstanding the Central Bank’s disposition to accept these deposits. The Minister insisted that, although the Central Bank is legally permitted to accept deposits of this nature, there is a gentlemen’s agreement between those favoring the Central Bank and those in the commercial banking business who opposed its organization, that it would not accept private deposits. It is not meant to be implied that these commercial credits have been made available since the creation of the specially blocked accounts, because the more important firms in Venezuela which appear in the Proclaimed List have long enjoyed excellent credit rating and commensurate banking accommodation; but it cannot be overlooked that a continued granting of these unsecured credits, despite the existence of restrictive measures—at least on paper—may well be influenced by the fact that the individuals concerned have on deposit with the banks sufficient funds to meet these obligations in the event their normal ability to pay becomes circumscribed.
In considering this subject it should be recalled that the Venezuelan Ambassador to the United States requested the opinion of the Department of State with regard to permitting the investment of Axis funds (evidently meaning those funds paid into Specially Blocked Accounts) in Venezuelan Treasury bills (See Embassy Despatch No. 4119 dated March 15, 1943) which would in effect permit the payment of interest on blocked accounts at the rate of 4½% per annum, instead of 1¼% per annum, the highest rate now paid on specially blocked accounts. To permit such an investment would mean, in effect, that the only penalty suffered by Proclaimed List firms on theoretically blocked funds would be the difference between the return on Treasury bills (4½% per annum) and the interest rate charged for commercial credits ranging from 4% to 9% per annum, according to the firm’s credit rating (i.e. a possible profit of ½% to annum). It is trusted that the Embassy’s present effort to have commercial credits to Proclaimed List Nationals, completely terminated within a period of nine months will bring forth an accurate statement from the respective banks showing the extent to which these credits exist and the rates of interest charged therefor.
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Respectfully yours,