Exchange Control and the Argentine Market 9780231881913

Table of contents :
Preface
Table of Contents
List of Tables
1. The Peso, Commercial Policy and Argentine Foreign Trade: 1899–1931
2. The First Stage of Exchange Control
3. The Transition to Formal Anglo-Argentine Bilateralism
4. The Exchange and Trade Control Regime of November, 1933
5. The Roca-Runciman Treaty of 1936
6. The Trade Balance and the Treatment of United States Trade, 1935–1937
7. Exchange Control in Recovery and Slump
8. Exchange Control after 1938: the Transition to Quantitative Restrictions
9. The European Conflict and the Status of Trade Discrimination
10. The American Position as Seen in Import Series
11. Some Observations on Exchange Control and the Means for Improving the American Position in the Argentine Market
Bibliography
Index

Citation preview

STUDIES

IN

HISTORY,

AND

PUBLIC

ECONOMICS LAW

Edited by the FACULTY OF POLITICAL SCIENCE OF COLUMBIA UNIVERSITY

N U M B E R 485

EXCHANGE CONTROL AND THE ARGENTINE

MARKET

BY

V I R G I L SALERA

EXCHANGE CONTROL AND THE

ARGENTINE MARKET

BY

VIRGIL SALERA, Ph. D.

NEW

YORK

COLUMBIA UNIVERSITY

PRESS

L O N D O N : P . S. K I N G & S O N , L T D .

1941

COPYRIGHT,

1941

BY

COLUMBIA UNIVERSITY

PRESS

PRINTED I N T H E UNITED STATES OF AMERICA

σο FREDERIC Β. GARVER

PREFACE THE present work, representing research undertaken in Buenos Aires during the academic year 1939-40, is primarily a study of a neglected sector of recent international commercial policy—British bilateralism vis-à-vis Argentina. United States trading interests have been the principal sufferers under the discriminatory exchange-control treatment stemming principally from this type of bilateralism, and the tone of the analysis which follows reflects in considerable measure the author's frequent contact with the American business community while in the Argentine capital. Students of international commercial relations are entitled to a study in which the best of the available factual material is set forth and interpreted not only in terms of standard analytical techniques, but also so as to reflect the imponderables of a given economic problem. In most of the following pages an attempt is made to achieve a balanced treatment in this sense. Those concluding sections relating to the means for improving the American position in the Argentine market, however, are set forth only with the tentativeness that is born of a humble appreciation of the complexities of a difficult problem. (Except for some minor details, the manuscript was completed in September 1940). M y investigations in Buenos Aires were facilitated by the helpful and friendly cooperation of numerous individuals. It is unfortunately impossible to make separate acknowledgment to the many busy persons who generously gave of their time. I wish, however, to acknowledge the special library privileges accorded me by Dr. C. A . Coll Benegas, Chief of the Bureau of Research of the Argentine Central Bank. M y sincere thanks are also due to the Bank's librarian, Sr. R. Alfredo Estévez, whose extensive and courteous assistance is most appreciated. The personnel of the Tornquist Bank library, the library of La Prensa, and the library of the Faculty of Economics of the University of Buenos Aires also aided me in a variety of ways. I owe a particularly large obligation to Professor James W . 7

8

PREFACE

Angell, of Columbia University, for his patience in suggesting improvements with respect to the (rather intractable) style as well as the substance of the manuscript. Helpful suggestions were also received from Dr. Michael T . Florinsky of Columbia University, Mr. Shun-hsin Chou of Yenching University, Dr. Horace G. White of New Y o r k University, and Mr. Kirkley S. Coulter. Although my graduate studies at the University of Minnesota did not bear directly upon the subject of this volume, I am deeply conscious of the influence of the Minnesota group, especially that of Professor Frederic B. Garver, upon much of my thinking. In common with those who have had the happy privilege of coming under the influence of Professor Garver, my admiration for his inspiring teaching knows almost no bounds. It is therefore with sincere affection and pleasure that I take this opportunity to reduce my " debt " in a teacher-student " clearing " by dedicating this study to him. V . S. BERKELEY, MAY,

1941.

CALIFORNIA,

TABLE OF CONTENTS PACE PREFACE

7

CHAPTER

I

T h e Peso, Commercial Policy and A r g e n t i n e Foreign Trade: 1899-1931. CHAPTER

13

II

T h e First Stage of E x c h a n g e Control

56

CHAPTER

III

T h e Transition to Formal A n g l o - A r g e n t i n e Bilateralism CHAPTER

69

IV

T h e E x c h a n g e and Trade Control R e g i m e of November, 1933 . . . . CHAPTER

96

V

The Roca-Runciman Treaty of 1936

152

CHAPTER

VI

T h e Trade Balance and the Treatment of United States Trade, 19351937 165 CHAPTER

VII

E x c h a n g e Control in Recovery and Slump CHAPTER

180

VIII

E x c h a n g e Control after 1938: the Transition to Quantitative Restrictions

199 CHAPTER

IX

The European Conflict and the Status of Trade Discrimination CHAPTER

. .

X

The American Position as Seen in Import Series CHAPTER

215

228

XI

Some Observations on E x c h a n g e Control and the Means for Improving the American Position in the A r g e n t i n e M a r k e t . 242 BIBLIOGRAPHY

275

INDEX

281

9

LIST OF TABLES Yearly Average Gold P r e m i u m , 1883-1904 15 T h e P e r c e n t a g e Share of Great Britain, Germany, the United States, F r a n c e and Italy in A r g e n t i n a ' s Foreign Trade, 1910-1914. . . 26 P e r c e n t a g e of A r g e n t i n e Imports Supplied by the Five Leading Countries, 1920-1929 4-2 T h e Physical Volume of A r g e n t i n e Exports, 1920-1929 44 Grain Regulating Board: Monthly W h e a t Purchases, Cancellations, Sales and Stocks, 1934 105 M o n t h l y Average Official and Free Market Sterling E x c h a n g e Rates, January 1934 to June 1935. 112 E x c h a n g e Losses and Returns to Privately Owned A r g e n t i n e Railways 132 Official E x c h a n g e Allocated to the United K i n g d o m , May 1933 to D e c e m b e r 1935 . . .141 Official E x c h a n g e Allocated to the United K i n g d o m , by Categories, 1933-1935 . . . 142 S h a r e of Official E x c h a n g e Allocated to the United K i n g d o m , 1933-1935 142 I m p o r t s and Official E x c h a n g e Sold for their P a y m e n t , May 1933 to December 1935 . . 143 A r g e n t i n e Meat Quotas under the Revised Roca A g r e e m e n t of 1936, and the Relative Importance of t h e British Market by Categories of Meat Exports -154 A r g e n t i n a ' s Import and Export Trade with the United States, t h e United K i n g d o m and Germany, 1927-1937 166 Estimated Sales of Official Dollar E x c h a n g e , Total Official E x c h a n g e Purchased, and Total Allocated for Imports, 1935-1937 . · · · 169 A r g e n t i n e and United States Figures of Hide and Skin E x p o r t s to the United States, 1935-1937 . . . . 173 Distribution of Materials Purchased by Y. P . F . by O r i g i n , 1930-1937. 175 M o n t h l y Average Sterling Selling Rates in Official and F r e e M a r k e t s 181 A r g e n t i n a ' s Balance of P a y m e n t s , 1933-1937 · · • 182 A r g e n t i n e Foreign Trade Quarterly Returns 187 Free E x c h a n g e Market Operations . . . . . . 187 Comparative T r e a t m e n t Accorded to Different Countries on P r o d u c t s of Principal Interest to the United States . 210 Comparative Prior Permit and Quota T r e a t m e n t Accorded Certain I m p o r t s of United Kingdom and United States O r i g i n , 1932-1940. 224 P e r c e n t a g e Share of Argentine Imports of United States O r i g i n , by Main Commodity Groups, 1925-1938. 230 P e r c e n t a g e Share of A r g e n t i n e I m p o r t s of United K i n g d o m O r i g i n , by Main Commodity Groups, 1925-1938 . . . 231 P e r c e n t a g e Share of Argentine I m p o r t s of German O r i g i n , by Main Commodity Groups, 1925-1938 . . . 232 S t e r l i n g and Dollar E x c h a n g e Quotations . . . 269 Distribution of Sales of Official E x c h a n g e by Categories 271 Yield of and Expenditures from t h e E x c h a n g e Margin, 1933-1938 272 M o n t h l y Purchases of Official E x c h a n g e and Total Holdings of Foreign Currencies and Gold 273 II

CHAPTER I T H E PESO, COMMERCIAL POLICY A N D A R G E N T I N E FOREIGN TRADE: 1899-1931 Ι.

THE

CONVERSION

LAW

OF

1899

T H E history of Argentine currency in the twentieth century shows a surprising degree of continuity amidst the diversity of f o r m that characterized this period. Since 1899, when the Conversion L a w was passed, the country has successively experienced fourteen years of the gold standard, thirteen years of uncontrolled inconvertible paper, another two years of the gold standard, still another biennium of uncontrolled inconvertible currency, and finally, since 1 9 3 1 , two distinct types of exchange control. Considering this evident diversity of f o r m , the reader may well ask wherein lies the alleged continuity. Although the present study is concerned particularly with exchange control and the role it has played in Argentine trade policy, to demonstrate the continuity in its currency history a brief review of the status of the peso over the past several decades is necessary. 1 W e shall in addition attempt a summary analysis of Argentine commercial policy and international trade. T h e year 1899 stands out as epochal in the annals of A r g e n tine currency. It was in that year that the peso was stabilized on a basis that freed the economic life of the nation f r o m the worst features of an inconvertible and erratically depreciating paper money. 2 Periods of stable currency prior to that time 1 Moreover, since the period 1899-1931 has not received systematic treatment within the knowledge of the writer, and since misconceptions concerning the peso during much of this period have gained currency through some publications of the League of Nations (discussed b e l o w ) , there is justification for such a survey. 2 See J. H. Williams, Argentine International Trade under Inconvertible Paper (1920), for an excellent analysis of the whole of this late 19th-century period.

13

14

ARGENTINE

EXCHANGE

CONTROL

were decidedly exceptional, and only one was of sufficient duration to merit being singled out here. In 1867 a new department, called the Bureau of E x c h a n g e , was set up in the B a n k of the Province of Buenos A i r e s to maintain the interchangeability of notes and gold at the rate of 25 to ι . Since A r g e n t i n a ' s commercial and

financial

dealings

throughout this early period were carried on directly in terms of gold or of bills on gold countries, with overseas purchasers and sellers in effect s h i f t i n g the m a j o r exchange risks on to the shoulders of local business men, the maintenance of interchangeability

at the

fixed

rate of

25 to

1 meant a

fixed

premium on gold in terms of paper. In this manner the distracting currency variable in all business plans was eliminated. T h e Bureau of E x c h a n g e operated effectively at first, but a f t e r it had been in operation f o r only seven years it w a s subjected to incursions upon its gold accumulations b y the Provincial Government. M o r e or less contemporaneously, loans to the government, a civil war, and finally the financial crisis of

1874-75 created a condition of

a f f a i r s that

forced

the

Bureau to close in M a y , 1876. T h e peso thereupon returned to its inconvertible status, a condition in which it remained during the n e x t 23 years save f o r one 18-month interval. A n d once more the currency variable (the

fluctuating

premium on

g o l d ) entered to upset the day-to-day plans of the business community. A c c o r d i n g to Williams, " it mattered nothing to the business man whether the paper peso w a s w o r t h $0.25 gold or a full gold peso today.

T h e really injurious circumstance

w a s that he had no means of k n o w i n g what it would fetch tomorrow;

but had to allow a l w a y s in his calculations f o r this

unpredictable, always shifting factor of unstable currency." * These premium

fluctuations,

reflecting the currency's deprecia-

tion and thereby the v a r y i n g cost of a unit of foreign currency, were

disturbances of

the

first

importance.

(gold) As

a

matter of fact, fluctuations of as much as 5 to 10 per cent in a 3

Op. cit., p. 161.

T H E

P E S O :

1899-1931

T A B L E YEARLY

1

AVERAGE G O L D

PREMIUM,

Year

Per Cent

Year

1S83 18S4 1885 1886 1887 1888 1889 1890 1891 1892 1893

0 0 37 39 35 48 91 151 287 232 224

1894 1895 1896 1897 1898 1899 1900 1901 1902 1903 1904

Source: Extracto Estadístico, 1916, Dirección la Nación (Buenos Aires, 1916), p. 296.

1SS3-1904

Per Cent .. .. .. .. .. .. .. .. .. .. .. General

257 244 196 191 158 125 131 132 136 127 127

de Estadística

de

single month were of not uncommon occurrence. That speculative gains and losses on exchange account were the order of the day may be seen from the figures in Table 1, showing the yearly average gold premium.4 The Conversion Law of 1899, together with propitious circumstances consisting largely of a succession of favorable balances of international payments, remedied this condition of affairs. By the terms of this measure, ( 1 ) a redemption bureau was added to what had previously been a Conversion Office (Caja de Conversion) 5 in name only, and ( 2 ) a redemption fund was created. The bureau of the Conversion Office was obliged to stand ready at all times to exchange gold for paper and vice versa at the gold premium then ruling in the market, viz., 1 2 7 . 2 7 per cent (227.27 paper per 100 gold pesos, or 44 centavos gold per paper peso), 8 while the fund (originally in4 It need hardly be added that these yearly figures frequently mask significant short-term movements of the level of the premium. Cf. Williams, op. cit., pp. 138-140. 5 Established Oct. 7, 1890. 6 On Nov. 5, 1891, Congress created a gold peso of 1,451.61 milligrams fine gold, equal to a mint par of 47.58 pence, 5 French francs, and $0.965 U. S. with respect to sterling, the franc, and the dollar, respectively. Instead of redefining the gold peso, as is customary in cases of this sort, the Law of

l6

ARGENTINE

EXCHANGE

CONTROL

tended f o r the redemption of all previously outstanding notes, but shortly a f t e r its establishment limited to 3 0 million pesos) was set up to permit the redemption of paper currency outstanding prior to the passage of the Conversion L a w . In short, the 1 8 9 9 A c t consolidated, so to speak, the de facto depreciation of the paper peso. 7 It m a y be remarked that the continued appreciation of the currency unit w a s generally regarded a s being against the interests of the dominant agricultural producers of the country. F o r the rate of peso appreciation, which at this time had little appreciable effect upon world prices o f Argentine primary products, foreshadowed steadily declining receipts per unit of volume to those producing f o r export. T h a t is to say, the extrapolation of the trend of peso appreciation and that of Argentine export prices presented a decidedly unfavorable picture in terms of sales proceeds in pesos. T h e Conversion L a w w a s designed to bring a halt to this adverse trend. In accordance with the terms of the 1 8 9 9 A c t all f u t u r e note issues by the Conversion Office were to be on a strictly 2 . 2 7 b a s i s ; but since the size of

the redemption f u n d w a s

limited by statute to approximately one-fourth of

the total

paper currency previously outstanding, it f o l l o w s that

from

the date of the Conversion L a w notes and gold would stand at something more than a 2 . 2 7 to 1 ratio. T h e A r g e n t i n e currency

was

fiduciary

somewhat

like

the

combined

gold-backed

and

issues of the B a n k of E n g l a n d .

1899 simply gave the paper peso a specific fractional value of the gold unit of 1891, as stated in the text. For a discussion of the nature of the controversy centered upon the conflicting interest of importers and exporters, that raged over the rate at which conversion was to be effected, see Williams, op. cit., pp. 157-162. Essentially the same set of forces determined monetary policy in the early i92o's and again during the early exchange control period. 7 In view of the contemporary cost-price relation, it has been held that the fixing of the rate at 44 centavos gold plus the existence of just under 300 million pesos of unbacked paper were factors tending to assure the success of the Conversion Law. See R. Prebisch, "Anotaciones Sobre Nuestro Medio Circulante," Revista de Ciencias Económicas, Buenos Aires, May-June, 1922, p. 294.

THE

PESO:

1899-1931

17

2. 1899-1914: THE PESO There had been previous unsuccessful attempts to restore stability to the paper peso, so the institutions established by the legislation of 1899 were faced at the outset with the task of instilling the degree of confidence essential to a transition to an ordered currency. The Conversion L a w was only a few weeks old when an Exchange Commission, headed by the President of the dominant Banco de la Nación Argentina, was set up to act in an advisory capacity on exchange matters. This Commission emphasized the necessity of achieving greater peso stabilization, and advocated consideration by the authorities of a policy of buying export bills in the interior of the country when the exchange was favorable and selling foreign drafts when gold exports seemed impending. 8 This direct intervention in the exchange market does not appear to have been carried very far, but it is worth stressing that, because of the conditions prevailing at the time, even this measure did little to assist the proponents of peso stabilization. The latter were seeking to convince important groups in the community that the 1899 A c t was superior to somewhat similar measures unsuccessfully tried in the past. It was not an easy task to persuade individuals brought up on the idea that more or less regular premium fluctuations were no less inevitable than the fluctuations of the tides, that one more monetary law, however well conceived, could produce an exception to the rule. F o r one thing, the direct and indirect cooperation of the trading banks was indispensable. The latter, however, were far from uniformly disposed to help. More disturbing was the influence of those sections of the press that were opposed to the law of 1899. These newspapers, for one reason or another, frequently incited the exchangeminded public to convert their paper without delay, lest they shortly find a rise in the premium that would impose losses on them. A s a result, we read of regular complaints from the 8 Cf. Buenos Aires Handels-Zeitung, Dec. 2, 1899 ; S. A. Rosso, La Caisse de Conversion Argentine (Toulouse, 1916), p. 136.

l8

ARGENTINE

EXCHANGE

CONTROL

Conversion L a w ' s proponents against the practice of banks, mercantile houses, and individuals of buying up gold whenever the premium approached the legal rate. 9 These purchases constituted speculative holdings for a rise in the premium. N o r did the Conversion L a w benefit from the existence of groups holding gold for other than speculative purposes. The established trading banks were regarded in most quarters, at the time, as the safest depositaries of idle funds and gold. T h e record shows that the stream of yellow metal entering the Conversion Office was a mere trickle in what was characterized as a market " saturated with gold." 10 Moreover, the government itself was competing with the Conversion Office for available specie by acquiring the metal for the purpose of effecting payments on the service of its foreign debt. T o be sure, so far as the height of the premium was concerned, it mattered little for the time being whether the Buenos A i r e s gold supply was held by the banks or by the Conversion Office. Ownership had little effect on the quantity disposable, and this, in any case, had not yet reached really great proportions. The combination of large export surpluses and sizable capital imports, which would result in appreciable increases in the country's net gold holdings, was still a thing of the future. It was small wonder, therefore, that Argentina received little comfort from statements of the year-end holdings of the Conversion Office. The insignificant sum of 1,463 pesos gold was reported in 1899, while 1900 and 1901 disbursements exceeded receipts by the amount of the 1899 balance. A t the close of the second year of operations the gold stock of the Office was nil. Contemporary opinion traced this state of affairs principally to the Boer W a r and the Boxer Rebellion, on the one hand, and on the other to reduced exports of live animals 1 1 and fl Buenos Aires Handels-Zeitung,

Feb. 17, 1900.

10 Ibid. 11 This was due largely to the closing of British ports to Argentine livestock from April 30, 1900 to March 1903. Fear of the transmission of the aphthous virus was given as the reason for this prohibition. Cf. S. G. Hanson, Argentine Meat and the British Market (1938), p. 130.

THE

peso:

1899-1931

19

wool. The former condition accounted for a tightening of European interest rates, in the face of which Argentine investments appeared less attractive to its leading lenders, and the latter for a fall in the trade balance. 12 Moreover, budget deficits occurred in each of these years. It may be pointed out, however, that the Office's 1900 showing would probably have been more favorable had not an abnormal appreciation of the Brazilian milreis with respect to European currencies induced Argentine banks to undertake relatively large arbitrage operations, thus offsetting their loss of gold by augmented European balances. A s a matter of fact, these operations resulted in the peso's being quoted above par for a short period, reaching 48 i/i6d in mid-June, 1900. 13 From November 1899 to the close of 1 9 0 1 , however, the exchange, with temporary exceptions, was slightly below parity. The year 1902 marks a significant turning point. Although its opening months were but a continuation of the situation of the previous year, good crops and a resumption of foreign borrowing soon brought about a remarkable improvement in the balance of international payments. B y mid-year the rate of receipts at the Conversion Office was slightly greater than that of disbursements. Y e t the Law of 1899 was still considered, except by a few champions, to be but an " urgent expedient " rather than a permanent policy.1·4 Actually, the current excess of receipts over disbursements was only the beginning of a movement that continued without interruption for well over a decade. In a banking world nurtured on disordered currency, inconvertible and depreciated paper was taken as a matter of course, but decided changes in this regard were produced as a result of a new turn of events. B y October, 1902, the state of affairs had so altered that the banks were confronted with 12 Buenos Aires Handels-Zeitung, issues of August to December, 1900. 13 Ibid., June 22, 1900. 14 Ibid., May 23, 1902.

20

ARGENTINE

EXCHANGE

CONTROL

the novel problem of determining the proportion of their paper resources that might prudently be used for absorbing gold. 16 A t the same time, we find the press commenting on the marked shift from speculation in gold to speculation in bonds. Y e t midway through the following export season, in February 1903, with the peso hovering near parity, banking circles persisted in labelling the transfer of gold to the Conversion Office as temporary and as due only to the " excessive " offers of the metal in the Buenos Aires market. A s the main export season (December to M a y ) drew to a close and the seasonal increase of paper in circulation was reduced following the movement of the crops, it was claimed that gold recently deposited at the Conversion Office would return to the trading banks in an amount " no more nor less than had been the case in previous years." 18 But gold continued to stream into the vaults of the Office. The inroads of the government into the gold holdings of the Bureau of Exchange of the Bank of the Province of Buenos Aires only seven years after its founding in 1867 had not been forgotten by those concerned with the exchanges. It was therefore to be expected that they would raise this point in their criticism of the Conversion Office as soon as its receipts appeared to exceed its disbursements with some regularity. F o r tunately, most of the unfavorable comments from political quarters consisted either of opportunistic remarks by individual politicians or of late 19th-century harangues against the concentration of monetary powers. Although some legislators actually suggested amendments designed to weaken the L a w of 1899, disapproval of such action was voiced by those in influential political circles. 17 Finally, three and a half years of relative uncertainty were brought to a close when President Roca, in April of 1903, emphatically denied that there would be 15 Ibid., O c t 24, 1902. 16 Ibid., F e b . 20, 1903. 17 Ibid., M a r c h 13, 1903.

THE

PESO:

1899-1931

21

18

any alteration of the official premium. A s a result of this belated affirmation the Conversion Office emerged from its adolescent stage, and the recognition of the Office as an integral part of the Argentine gold-standard monetary system may be said to date from the year 1903. 1 9 The decade preceding the World W a r was marked by the volume of European capital that found an outlet in private and public investment in Argentina. New land areas were placed under cultivation, construction projects proceeded apace, and the volume and value of the export trade were greatly augmented. But the export balance, although growing in size, was not keeping pace with the steadily growing foreign debt service, so that an increasing fraction of the latter had to be met from the proceeds of new external borrowing. The Argentine balance of payments at this stage was hardly less dependent than formerly upon regular annual imports of new capital. It is in this balance-of-payments context that we must read the influence upon Argentina of the loan-restricting forces set up by the war in the Balkans. The outbreak of hostilities in that area resulted in a marked diminution in the rate at which capital flowed in from Europe. 20 Forces making for contraction now gained the ascendency, and late 1 9 1 2 and 1 9 1 3 were characterized by a heavy net repayment of bank loans. 21 Because of successive adverse balances of payments—with exchange above the gold export point—a decline in note circulation followed as the quantity of notes received by the banks from their bor18 Ibid., May 1, 1903. 19 Since unlimited redemption w a s not possible in 1900 and 1901, true g o l d standard conditions did not exist in these years. For our purposes, however, w e may leave unaltered the statement of the opening paragraph of this study, which includes these years as well a s those subsequent t o 1903. 20 Cf. La Nación, July 30, 1913. T h e United States was as yet an unimportant supplier of capital. 21 In the three-year period 1912-14, the loans of domestic banks fell f r o m 812 t o 472 millions paper. T h e decline in the loans of the foreign banks, institutions which were definitely of secondary importance in the Buenos A i r e s market, was not so marked. Cf. Prebisch, op. cit., p. 302.

22

ARGENTINE

EXCHANGE

CONTROL

rowing public fell short of the quantity that the banks in turn converted into specie at the Conversion Office. The combined specie holdings of the latter institution and the banks fell from 338 million in June, 1 9 1 3 to 295 million in December." Then followed in succession the crop failure of 1913-14, 2 3 intensifying the recession that had already set in, domestic obstacles to the movement to the ports of supplies that might have been available for export, and the paralyzing news of war in Europe. The conflict found Argentina, which was closely attached economically to both sets of belligerents, in a state of minimum preparedness. Commercial and industrial life came to an abrupt halt, shipping ceased, the banks and exchanges closed their doors, and—as if to make the paralysis complete—there \vas widespread hoarding of finished goods and raw materials. In short, a state of general panic prevailed. Government intervention was immediate and far-reaching. On August 2 the authorities decreed the closing for eight days of all financial establishments, including the Conversion Office. B y the addition of an embargo on gold exports, 24 a halt was brought to the dangerously rapid drain of the Office's metallic holdings. 25 The government, hastening to advise the public that the Conversion Office was to be closed only provisionally, emphasized that no other course of action was open to it. It was determined to avoid any fundamental change in the L a w of 1899, and opposed any further decrease in the note circulation, such as would inevitably follow if redemption were to remain unchecked. The great contemporary uneasiness may readily be appreciated. From a level of approximately 900 million pesos in June 1 9 1 3 , notes outstanding fell in response to 22 Cj. Rosso, op. cit., pp. 169-170. 23 This was reflected in part in the fall in cereal exports from JO to 6 million tons between 1913 and 1914. Cf. Anuario del Comercio Exterior (Buenos Aires, 1939), p. xxxix. 24 Within the week, legislation was passed indefinitely suspending gold payments and indefinitely prohibiting specie exports. 25 In what follows, we shall refer only to those emergency measures that bear directly on the exchanges.

THE

PESO:

1899-1931

23

the gold flight to 823 million in December and to 736 million on August ι , Ι9ΐ4· 2β In the circumstances, relief of the monetary tension through an immediate increase in note circulation was indispensable. T w o important countervailing measures were taken in the first week of August. In default of ocean shipping, it was decreed that gold held abroad for Argentine account might be deposited in Argentine legations against the issue of a corresponding amount of paper by the Conversion Office—still at the old rate of 2.27 to 1, despite the suspension of gold payments. That is to say, gold deposited at Argentina's foreign legations was treated, for currency purposes, as if it had actually been deposited at the Conversion Office in Buenos Aires. A s a result, the note circulation jumped to 803 million at the end of December, 1914. 27 Provision was also made to enable the Banco de la Nación, and through it the other trading banks, to obtain additional notes by rediscounting commercial paper with a usance not exceeding 180 days, provided that the currency's gold backing should at no time be less than 40 per cent. Innocuous as a measure of this sort appears to present-day readers, it excited voluminous controversy in the pages of La Prensa and La Nación, Argentina's two leading dailies. These war-time debates, the proponents' side of which was strengthened as a result of the favorable impression created 26 Cf. Rosso, op. cit., p. 180. During late 1913 and up to the war political and business leaders frequently complained about the deflationary effect of continued specie exports, often pleading for an elastic note issue on the order of that under the Federal Reserve System. See, especially, A. Hueyo, La Prensa, March 24, 1914. 27 A few months later it was claimed that without this measure " it would have been literally impossible to move the crops, for want of means of payment." La Prensa, April 14, 1915. Surely this reveals the overwhelming desire of some important sections of public opinion to avoid any possible basis for return to the pre-1899 conditions of " forced currency circulation ", for the " want of means of payment " could have been remedied very easily on the technical side by recourse to the policy of rediscounting at the Conversion Office.

24

ARGENTINE EXCHANGE

CONTROL

by the passage in the United States of the Federal Reserve Act, were but a continuation of those initiated a year previously, when a similar rediscount bill 2 8 failed to receive congressional sanction. That the authorities were determined not to take measures likely to revive the pre-1899 monetary conditions, in spite of the undoubted exigencies of the moment, is clearly revealed by their refusal to use the generous facilities open to them under the rediscount law.2* Before the banks reopened their doors on August 1 2 , the government took steps to ease the transition to war conditions by decreeing a general financial moratorium for the month of August. The confidence of the public in the safety of its deposits was such, however, as to enable the government to lift this moratorium on August 1 3 , so f a r as the deposit liabilities of the banks were concerned.30 One large foreign bank, however, was unable to follow the others in reopening their doors, and for this and other cases of known weakness a Mobilization Fund was set up in an endeavor to restore some degree of liquidity. A f t e r these steps had been taken the Argentine monetary mechanism was deemed to be in a condition to withstand the impact of the war. 3 . 1 8 9 9 - 1 9 1 4 : COMMERCIAL POLICY AND FOREIGN TRADE

Argentine commercial policy prior to 1 9 1 4 does not constitute an involved chapter in the country's economic history. Treaties of commerce and navigation, of which that with Great Britain in 1825 was the first, still determined the framework within which mutual trade was conducted. F o r the most part, these treaties called for Argentina's granting unconditional 28 Cf. Diario de Sesiones, Cámara de Diputados, July 21, 1913. 29 Rediscounting was not resorted to during the war. Rosso estimates that rediscounting would have permitted the issuance of notes to the extent of some 450,000,000 pesos. Op. cit., p. 183. 30 Ibid., p. 181.

THE

PESO:

1899-1931

25

1

most-favored-nation tariff treatment,* and the record indicates that departures from effective equality of commercial treatment never assumed serious proportions before the World War. In fact, it would be no exaggeration to say that instead of a commercial policy in the usual sense, that is, one consisting largely of tariff bargaining, Argentina's program was concerned chiefly with matters of railway investment and immigration." We now turn to the matter of the general composition and distribution of Argentine international trade during the period 1 8 9 9 - 1 9 1 4 . Statistical data for this period are rather unsatisfactory. The breakdown of import and export figures into commodity classifications for countries of origin and destination dates only from the World War, while data relating to total imports and exports by countries are not available prior to 191ο.* 3 Nevertheless, the figures in Table 2, showing the share of the five leading countries in Argentina's foreign trade for the quinquennnium 1 9 1 0 - 1 9 1 4 , may throw some light upon the pre-World W a r relative importance to Argentina of her principal trading partners. 31 A few neighboring and some overseas countries received conditional most-favored-nation treatment. Such, for example, was true in the case of Chile. Cf. S. Β. Aguirre, " Las Relaciones Comerciales entre Chile y la Argentina a Través de los Tratados," Revista de Ciencias Económicas, Sept. 1937. ΡΡ· 772-773- The treaty of 1854 with the United States also contains the conditional clause. 32 One of the few works devoted to the Republic's so-called commercial policy does not even mention the most-favored-nation clause in Argentina's international treaties. Cf. A. E. Bungé, La Economia Argentina, Vol. I V (Buenos Aires, 1930). 33 Moreover, the data on exports by country of destination suffer, with respect to this early period, from the absence of correction for the important category of Argentine exports " to order ". One-fifth of all exports in the quinquennium 1910-1914 were " to order ". Cf. Anuario del Comercio Exterior (Buenos Aires, 1939), p. xlix. (Hereinafter this publication will be referred to as Anuario.)

26

ARGENTINE

EXCHANGE

CONTROL

TABLE 2 T H E PERCENTAGE SHARE OP GREAT B R I T A I N , G E R M A N T , T H E UNITED STATES, FRANCE, AND ΙΤΛΙ,Υ I N ARGENTINA'S FOREIGN TRADE, 1 9 1 0 - 1 9 1 4

1910 1911 1912 1913 . 1914 .

Great Britain

Germany

United States

France

Italy

Im- E x porta ports 22 31 . 30 28 31 25 31 25 34 29

Im- E x ports ports 12 17 18 13 11 17 17 12 15 9

I m - Exports ports 14 7 14 8 7 15 15 5 14 12

Im- Exporta porta 10 10 10 12 10 8 9 8 6 8

ImExports ports 9 3 8 4 8 4 8 4 9 2

Source : Anuario (Buenos Aires, 1939), pp. Ixiv--lxxi.

These data clearly reveal the importance of Europe, and in particular of Great Britain, in Argentina's foreign commerce. On the export side, the United Kingdom, Germany and France bulked larger than the United States in this pre-World W a r period. Moreover, if Argentina's " to order " shipments in this period could be allocated to countries of ultimate destination, it is likely that all four European countries would rank above the United States." On the other hand, the United States was in third place, following the United Kingdom and Germany, as a source of Argentine imports. While the difference between their share of total imports and their share of exports in the case of Britain, Germany and France was relatively small (the difference would probably be wiped out if the sum of the exports shown by countries of destination equalled the sum of actual shipments from Argentine ports), American and Italian sales to Argentina were more than twice as great as their purchases from the South American republic. In the case of the United States, this characteristic of ArgentineUnited States trade was later to bulk large in the shaping of Argentina's trade control policy.85 34 " T o order " shipments to the United States were small, for the reason that such shipments were predominantly cereals. 35 Argentina's large unfavorable trade balance vis-a-vis Italy did not, in the later period, take on the signficance of the American case, largely owing to the fact that, in contrast to the United States, the Italian share of Argentine imports remained practically unchanged from its pre-World W a r position. Cf. below, p. 29.

THE PESO:

1899-1931

27

4. 1 9 1 5 - 1 9 2 0 : THE Peso T h e w a r had passed the half-way mark before the Argentine economy began to show definite improvement traceable to its new international economic position. T h e vagaries of nature go a long w a y to explain the situation through 1 9 1 7 . Serious c r o p failures were recorded in 1 9 1 4 and 1 9 1 7 , while in the t w o intervening years merely average agricultural yields accounted in large measure f o r the inability of the country to reap anything like the m a x i m u m potential gains f r o m the very favorable conditions of international demand. F o r the first time since the third quarter of the ninteenth century, in 1 9 1 7 grain exports had to be restricted to ensure the availability of supplies f o r seeding and home consumption. Moreover, Argentine producers saw very sizable deductions made f r o m delivered prices as the scarcity and control of shipping space drove freight rates to large multiples of their pre-war levels. Grazing products alone a m o n g the m a j o r exports showed consistent improvement. A s a matter of fact, up to the last year of the war A r g e n t i n a ' s international economic position improved more as a result of the maintenance of import values at approximately the low levels attained in the decade preceding the war than as a result o f any phenomenal rise in export proceeds. W h e n to these factors w e add the difficulties encountered in renewing existing foreign loans and obtaining new o n e s , " w e have the principal explanation of the slow rate at which the peso appreciated against the inconvertible currencies of the European belligerents, and of the fact that it lost ground in 1 9 1 5 against the only important gold c u r r e n c y — t h e dollar. N o t until the end of 1 9 1 6 was exchange on N e w Y o r k quoted below dollar parity. T h i s , however, marked the beginning of a three-year period o f appreciation during much of which the peso w a s at a premium over the currencies of every m a j o r country in the world. I n the space of less than t w o decades the Argentine monetary unit 36 Cf. Η . E. Peters, The Foreign Debt of the Argentine Republic pp. 79-100.

(1934),

28

ARGENTINE

EXCHANGE

CONTROL

thus emerged from nowhere to a top position among the world's currencies. Outstanding among the developments associated with the appreciation of the peso during the war and immediate postwar period w a s that of Argentina's first experience as an international creditor."' A t the outset of 1918, two-year credits " of 100 million gold pesos each were granted to the British and French governments for the a v o w e d 8 9 purpose of assisting allied purchases of Argentine cereals. Shortly afterwards the Argentine government agreed to a proposal submitted by the United States Treasury, 4 0 whereby the excessive depreciation of the dollar vis-a-vis the peso might be avoided by enabling American debtors on merchandise account to settle their obligations without recourse to the exchange market. Under this arrangement importers of Argentine produce simply delivered the dollar equivalent of pesos, reckoned at par plus 3 per cent, to the account of the Argentine Ambassador in Washington. 4 1 37 Still a net debtor, however. 38 See Boletín

Oficial, Feb. 4 and 8, 1918.

39 Cf. M. E . Greffier, " E l Convenio del 4 de F e b r e r o de 1919," Revista de Ciencias Económicas, Feb. 1919, pp. 82-84, and Buenos Aires Handels-Zeitung, Jan. 12, 1918. I t is difficult to take the official explanation seriously, for if anything may be said concerning the market position of cereals at this time it is that a sellers' rather than a buyers' market obtained. O n analysis, it is seen that these credits were extended involuntarily as but one of the terms of sale imposed on the seller by the buyer as a result of unified Allied purchasing and the control of shipping tonnage. 40 T h e principal United States bargaining point consisted in undertaking to make greater deliveries of combustibles—oil and coal—then urgently needed by Argentina. Cf. Buenos Aires Handels-Zeitung, Jan. 19, 1918. 41 Cf. The Commercial and Financial Chronicle, J a n . 12 and 26, 1918, pp. 129 and 339 respectively. T h e 3 per cent was added to cover what was considered to be the usual cost of shipping gold to Buenos Aires, in anticipation of the eventual transfer of gold to Argentina. T h e extent to which American importers benefited f r o m this arrangement, whereby they were spared the e x t r a burden of remitting to Argentina a t appreciating peso rates, probably amounted to more than 5 cents on each dollar's w o r t h of pesos, f o r they were able to buy the latter at 97 per cent of par during a period when the market rate would probably have fluctuated in the neighborhood of 90 per cent.

THE

peso:

1899-1931

29

T h e latter in turn placed the funds thus received in current account 4 2 at the Federal Reserve Bank of N e w Y o r k . T h e procedure was thus tantamount to the ear-marking of gold in Argentina's b e h a l f . " A g a i n s t this sum the Conversion Office could issue peso notes at the regular 2.27 to 1 rate, as in the case of the issue of notes against gold deposited at other legations. In passing, a further point may be mentioned in connection with the Anglo-French credits. Gold deposited at Argentine legations declined as a result of the extension of these credits, which led many to believe that the country's " hard " money reserves would be insufficient to withstand the strain of increasing economic activity. Congress was therefore prevailed upon to amend L a w N o . 4507, which obliged the Banco de la Nación to maintain a minimum reserve of 25 per cent against its deposit liabilities. B y this means monetary contraction was avoided without forcing the government to resort to the apparently much-feared rediscount law of 1914. 44 There can be little doubt that these capital exports 4 5 stemmed the tide of peso appreciation. F r o m a monthly average quotation of 100.7 October 1917, a month after the United States placed an embargo on gold exports, the appreciation reached its maximum of approximately 13 per cent above dollar parity in December of the same year. T h e average rate for this concluding month w a s 94.4. T h e peso declined 5 per cent during the ensuing January, 1918, the month in which the credits were granted, and another 2 per cent in February and March. Thereafter the scarcity of pesos in the allied countries brought about 42 T h e Argentine government agreed not to draw upon its Federal Reserve deposit during the life of the credit. Cf. W i l l i a m s , " Latin A m e r i c a n Foreign E x c h a n g e and International Balances," Quarterly Journal of Economics, May 1919, p. 424. 43 This w a s subsequent t o the United S t a t e s embargo on g o l d exports (Sept. 1917). 44 It will be noted that this measure differed little in principle from the dormant rediscount law. 45 Phelps, op. cit., p. 37 n, takes the v i e w that these credits represented only a transfer of monetary reserves as distinct f r o m genuine capital transactions.

30

ARGENTINE

EXCHANGE

CONTROL

a renewed appreciation, which averaged about 2 per cent for the balance of the year. Then, while imports streamed in at a new record pace, Argentina's balance of payments became less favorable, with the result that the peso leveled off to an average just under dollar parity in igig*e and the first half of 1920. Meanwhile the unpegging of sterling in March 1919, which brought to a close the parallel movement of the pound and the dollar, was followed by a sterling depreciation of great magnitude. The sharp decline of the pound to 46 per cent below parity in February, 1920 was mitigated by the almost equally marked recovery that ensued.47 By the end of the year the pound had rallied to within 12 per cent of par. 5. 1 9 2 0 - 1 9 2 9 : T H E

PESO

Argentina suffered much the same post-war readjustments as did other comparably situated primary-producing countries. Apart from the necessity of taking up tasks left undone during the war, tasks made more difficult by a combination of factors which we shall discuss presently, the readjustment was complicated by the disordered state of many of the world's currencies in the opening years of the decade, when the decline of the peso was a center of controversy. The first sharp indication of the direction in which the wind was to blow was presented to the Argentine public in midJuly, 1920, when the government suddenly prohibited the transfer to the account of Argentine banks of the government's gold on deposit at foreign legations. Until then the banks had been able in effect to export gold by the simple process of delivering their domestic holdings of the yellow 46 The embargo on specie exports from the United States was lifted in June, 1919. 47 It is worth noting for future reference that British concerns operating in the Argentine derived large gains on exchange account during this period. For example, the Buenos Aires Great Southern Railway reported a profit on exchange remittances of £1,230,733 for the year ending June 30, 1920, a sum just under its operating profit for the year. See Revista de Ciencias Económicas, June-July 1921, p. 419.

THE

peso:

1899-1931

31 metal to the Conversion Office, receiving in return title to an equal amount of the metal which had been held on government account at foreign centers. By the prohibition of July, however, even the small specie exports from the vaults of private banks were made impossible, and the embargo on the export of gold was complete. The dollar immediately rose, from 106 in early July to 1 1 4 at the close of the month. With the daily decline of the peso, the exchange problem was aggravated as the interests adversely affected began to press for countervailing measures. The Argentine Congress therefore passed a bill once more permitting limited specie exports.48 A novel49 feature of this bill permitted the Banco de la Nación to make gold withdrawals from both the Conversion Fund and Conversion Office in exchange for paper at the parity rate. Although this law was not made immediately effective, it sanctioned a temporary dual rate structure—some government remittances being permitted at par while the bulk of foreign exchange transfers were to take place at the ruling depreciated market rate. This development marked the advent of a type of exchange discrimination that presently became an almost annual feature of the Treasury's foreign debt service remittances, one that found its fullest expression within a decade in the period of controlled exchange. 48 Cf. Buenos Aires Handels-Zeitung, Sept. 25 and Oct. 23, 1920. A short while before this legislation was considered, Dr. Kohn of the Handels-Zeitung advocated the sale of dollars to nonspeculative remitters, against the balance to the account of the Washington legation, at an exchange rate intermediate between par and the ruling market rate. See ibid., Sept. 4, 1920. The same writer recommended, as the way to reduce the especially high price of dollars, the placing of import restrictions on all save " absolutely indispensable American products." Ibid., April 16, 1921. W e must not dismiss this as an isolated preference for the bilateral balancing of accounts with the United States, for this journal was still perhaps the most influential of its type in the republic. 49 The old Banco Nacional permitted conversion at par for some months in 1885, despite the market premium, in an effort to prolong the period of conversion then coming to an end. Cf. Williams, op. cit., p. 51.

32

ARGENTINE

EXCHANGE

CONTROL

Returning to the post-war exchanges, we find that between late 1920 and 1924, the period during which depreciation was heaviest, only one new important factor entered the situation. This

factor w a s that of

financing

unbalanced budgets. 50 T h e deficit

that ensued, most of which assumed the f o r m o f

external borrowing, played a decisive

role in shaping

the

Argentine balance of international payments and through this the position of the currency. F o r , with only small favorable trade balances during the first third of the decade, 81 and with the net service items relatively unchanged, a further steady decline of

the peso appeared

inevitable

in

default

of

an

abundance of foreign credit available on easy terms. In this domestic

fiscal

situation

foreign borrowing constituted

the

only means at hand for reversing the tide of depreciation a f t e r mid-1920. Once substantial depreciation had set in, the government could count on business to support a considerable volume of foreign deficit borrowing. A strong peso w a s quite naturally associated with the negotiation of foreign loans. T h o u g h dependent throughout its early history on the European money market, Argentina turned hopefully to N e w Y o r k . T h e terms on which dollars were offered at that time, however,

were

considered excessive, so the government had recourse to the Buenos A i r e s market, which was now actually offering more attractive terms that those available in the United

States."

T h i s unusual circumstance was itself a result of the u n f a v o r able exchange. T h e comparatively easy Argentine money conditions were traceable to the policy of many

non-Argentine

firms of holding substantial blocks of funds on deposit with local banks, pending their transfer to the home office at a more favorable rate of exchange. In the meantime loan offers f r o m N e w Y o r k were still being made. W h e n what were regarded as acceptable but still rather onerous terms were proposed, a 50 50 Cf. Peters, op. cit., pp. 104-105. 51 Cf. Phelps, op. cit., p. 44. 52C/. Peters, op. cit., p. 112.

THE p e s o :

1899-1931

33

million dollar, two-year loan was negotiated in September 1 9 2 1 . One or two smaller dollar 53 loans followed in the next year, mitigating somewhat the decline of the peso. The decline could not be avoided, however, since the combination of difficult foreign borrowing, budgetary disequilibrium, and unfavorable trade balances 54 was overwhelming. The Argentinians were naturally far from indifferent to the peso's marked depreciation. First, the burden of servicing the government's foreign debt was growing, for the number of pesos required to discharge a unit of debt payment had at that time increased by approximately 25 per cent. In the existing state of the budget this made interest remittances extremely onerous. Moreover, the perennial conflict between the interests of Argentine exporters on the one hand and those of importing houses and foreign-owned utilities and manufacturing concerns on the other was manifesting itself in all of its varied forms. A s in the closing years of the preceding century agriculturists, whose costs had reached a rough adjustment to the level of prices obtaining since the war, were obstinately opposed to submitting to the two-edged attack of declining world prices and peso appreciation. The former they were powerless to oppose, but the latter they could combat with all the energy they commanded through their dominating economic and political position." Not that they stood to reap fresh gains from the maintenance of the peso at the 1 9 2 1 - 2 3 level, for costs, as has been stated, had already been more or less adjusted to this level; but because a rapid, governmentally induced appreciation would have inflicted severe losses. Just as the question of the gold premium had been the center of financial discussion 53 It was held at this time that the United States Government's desire to redistribute gold via foreign loans was predicated upon its endeavor to reduce the tendency of dollar appreciation to restrict American exports. Cf. Buenos Aires Handels-Zeitung, Feb. 4, 1922. 54 Thus wheat shipments to April 1921 were but 700,000 tons as compared with 2,000,000 during the same period of 1920. Ibid., April 16, 1921. 55 For contemporary opinion on these matters, see the pages of La Prensa and La Nación, where this general subject is treated at frequent intervals.

34

ARGENTINE

EXCHANGE

CONTROL

in the nineties, its twentieth-century counterpart—the reopening of the Conversion Office 5 4 — w a s the subject with which the disputants of this period were concerned. T h e doors of the Conversion Office had no more been closed, and the August 1914 panic subsided, than there began a stream of criticisms of the suspension of payments that was to last f o r more than a decade. Since Argentina's fortunes had never remained unchanged for more than two successive years, it was to be expected that the nature of these criticisms would assume one form in (say) the opening years of the war, another during the war and immediately thereafter, and still a third during the period of post-war decline. It is with the criticisms during this third period that we are concerned in this study, since the issues involved in the earlier criticisms are not relevant to our main theme. A f t e r mid-1920 the salient features of Argentine currency consisted of marked depreciation combined with a paper peso whose 80 per cent gold backing was unequalled in any important country. Now, to be sure, there is no inconsistency whatever between these t w o circumstances for the simple reason that the paper peso was inconvertible. 07 Argentina could not enjoy both inconvertibility and exchange stability within the range of the gold points, for instance, save by placing her balance of payments in order and by establishing something in the way of a stabilization f u n d — a device evidently unknown to the Argentine authorities—with which to iron out undue seasonal and irregular movements of the exchange. 68 More56 And the lifting of the related embargo on specie exports. 57 Gaston Jèze, the French financial writer, frequently submitted articles to La Prensa during this period, naively affirming that Argentina was on a gold exchange standard basis both before and after peso inconvertibility. See, e. g., the issues of October 9, 1924 and May 21, 1925. One member of the Buenos Aires banking community, Dr. Emilio Hansen, publicly took Jèze to task for cloaking erudite analyses in outworn generalities. Cf. La Razón, Oct. Ii, 1924. 58 While lecturing on monetary problems in Argentina, Dr. Griziotti went so far as to say that when the proper time arrived for the opening of the Conversion Office, and the latter was in normal operation, Argentina would

THE

peso:

1899-1931

35 over, very little had been done at this date even with respect to the one item over which Argentina had undisputed control, the budget. In addition, one must record the indifferent success of her external borrowings. The resulting state of the balance of payments was clearly reflected in the quotation of her monetary unit. A s was stated above, the ruling value of the peso was accepted by the country's dominant economic group as being, in the current circumstances of international trade, a favorable factor; f o r with the peso slowly depreciating in relation to the currencies of her principal competitors, at least Argentina did not have to fear a reduction in export proceeds traceable to currency factors." In short, to this group the problem was an international one.80 On the other hand, for those who saw the peso price of imports rising in the face of generally declining world prices, the low value of the Argentine monetary unit was regarded as unsatisfactory." 1 Those in this group were therefore receptive to proposals for bringing about some appreciation in the peso. A s external borrowing possibilities were for the moment unfavorable, 82 most of the proposals involved opening one or more of the " entrances " to the Conversion Office.*3 Some groups favored an immediate and complete return to conversion on the pre-1914 basis, i. e., without limitations, a plan be able to enjoy "stable money, exchanges and prices." B. Griziotti, " L a Cassa de Conversione e i suoi Problemi in Argentina," Rivista Bancaria, Feb. 1924, p. 8. It is obvious that he missed the point. U n d e r gold standard conditions it is impossible t o have simultaneously stability of internal prices ( w i t h o u t "profit i n f l a t i o n " ) and stability of the exchanges. 59 It is doubtful if in the circumstances of international agriculture at this time the relative peso depreciation appreciably affected the world level of ( s a y ) wheat, meat and wool prices. Corn and linseed fall into an intermediate category. 60 Cf. Griziotti, op. cit., pp. 6-7. 61 T h i s of course applies with greater force to those remitting interest and dividends. 62 Cf. Peters, op. cit., pp. 112 ff. 63 S e e Griziotti, op. cit., for a contemporary's impressions of these proposals, on which the remainder of this paragraph is based.

36

ARGENTINE

EXCHANGE

CONTROL

that enjoyed considerable popularity. Those who felt that " redundant " paper had a good deal to do with the degree of depreciation that obtained at this time advocated limiting redemption to a specific figure, approximating the estimated paper " redundancy." M Others, representing import interests in the narrow sense, wished to differentiate between types of exchange transactions ; in their view exchange difficulties could be remedied by legalizing the par conversion of paper into specie only for those having to make foreign payments on account o f merchandise imports. 85 Rather early in the post-war campaign for the resumption of gold payments, the debate attained such proportions that the Executive Power felt called upon to inform Congress of its opinion concerning the reopening of the Conversion Office. It was pointed out that, given the ruling international monetary conditions in which the leading European nations were still on an inconvertible basis, the restoration of gold payments would inevitably result in a loss of the metal and that thereby 2.27 times as many paper pesos would be withdrawn from circulation, intensifying the monetary tension. T h e attention of Congress was also called to the somewhat comparable case, thirty years earlier, of the old Banco Nacional whose policy of continuing gold redemption in the face of a fundamental 64 A s a matter of fact note circulation and bank credit had been more or less constant for some time, and with a greatly increased volume of transactions more and more complaints were being heard concerning the tightness of the money market. T h e Buenos Aires H andéis-Zeitung, July 16, 1921, was especially emphatic on this score. 65 There is no suggestion in Griziotti's or other accounts of similar proposals of the thoroughgoing foreign trade and exchange control that would inevitably have accompanied any attempt effectively to prevent remittances at the favored rate for other than merchandise imports. It may be added that Griziotti mentions another group, w h o advocated resumption of gold payments at the market rate of exchange ruling at the time of such resumption, after the manner of the conversion measure of 1899. H e points out that to do so would have been an attempt at stabilization in a world of stark currency uncertainty. W i t h i n a f e w years this rate might seriously have overvalued the peso. Cf. Griziotti, op. cit., p. 6.

THE

peso:

1899-1931

37

disequilibrium served only to drive the specie premium higher after the gold supply had been depleted.®8 The debate and the underlying balance of payments situation remained unchanged until 1924, when the decade's first sizable export surplus and the greater ease with which Argentina could borrow in the N e w Y o r k money market led to a marked improvement in the peso. F r o m 135.59 in January 1924, the dollar rate improved to 113.0 in the closing month of the year and continued its rise 67 to a level less than 2 per cent below dollar parity in November, 1925. The peso slowly edged closer and closer to par in the next two years, and touched parity in March of 1927. Unlike the improvement late in the war and in the immediate post-war period, that during the quinquennium subsequent to 1923 received its principal impetus from the stream of capital that now began to flow in marked volume into the Argentine economy.®8 In fact, peso improvement both coincided with and remained heavily dependent upon the upward surge of American foreign lending, now proceeding apace as events in Europe took a turn for the better.®9 Certainly its improvement is not traceable to any appreciable amelioration of the non-capital items in the Argentine balance of international 66 Buenos Aires Handels-Zeitung,

J u l y 16, 1921.

67 Hastened by ( 1 ) European and American purchases of pesos inspired by the favorable prospects of shortly reconverting into their own currencies with a speculative gain, and (2) the export houses' liquidation of bear accounts by drawing against shipments effected months before. Cf. The Times of Argentina, Buenos Aires, May 25, 1925, p. 27. 68 The Government's servicing of its foreign debt via shipments of specie —the first withdrawals from the Conversion Office in a decade—dates from May 1924. These exports, made in an endeavor to cut down losses on exchange remittances, obviously provided support for the peso. Cf. Department of Overseas Trade, " Report on the Financial, Commercial and Economic Conditions of the Argentine R e p u b l i c " (London, 1925), p. 15. This also is an instance of dual exchange rates, the Government in effect making remittances to its foreign creditors at mint parity. 69 Peters, op. cit., pp. 119 ff., and Phelps, op. cit., p. 48. The Argentine national, provincial and municipal debts outstanding in the United States increased about fourfold from 1923 to 1930.

38

ARGENTINE

EXCHANGE

CONTROL

payments, at any rate not until midway in the second half of the decade.70 Beginning in 1927, the stimulus resulting from the capital influx was reinforced by export surpluses several times as large as the average recorded for the earlier years. 71 Yet the noteworthy improvement on commodity account was insufficient to provide a favorable trade balance with which to cover her service remittances. The country was still in no position, given the general condition of affairs that prevailed, to cover its foreign debt service from its current net international incomc. Why then did not this factor constitute an obstacle to the strengthening of the peso? The answer, as was pointed out above, is to be found in the fact that the country was favored with uninterrupted capital imports greatly in excess of the adverse balance of payments. The resulting specie receipts, rapidly swelling the holdings of the Conversion Office, finally prompted Argentina's resumption of gold payments 72 in the early fall of 1 9 2 7 . " At bottom, however, the resumption of gold payments seems to have been little more than a politico-economic expedient. The government was motivated more by a desire to placate those agriculturists who saw in the continued appreciation of the currency a threat to the maintenance of the peso proceeds of their exports than by any conviction that some so-called long-period equilibrium rate of exchange had been attained. In this case, therefore, the policy-determining forces were basically identical with those making for the old definition of the peso in the Conversion L a w of 1 8 9 9 . " The producers' 70 Cf. Phelps, op. cit., pp. 45-46. 71 Ibid., p. 49. 72 The embargo on gold exports was lifted shortly after Britain's return to gold in 1925. 73 Despite the non-fulfilment of Finance Minister Molina's minimum conditions: a balanced national budget and the funding of the floating debt. Cf. Peters, op. cit., p. 121. 74 For a similar view, cf. the remarks of the visiting French economist, Louis Baudin, in La Nación, Jan. 11, 1932.

T H E PESO: 1 8 9 9 - 1 9 3 1

39

principal concern in this instance as in the past thus seems to have been much more with the amplitude of swings in the rate, especially on the appreciation side, than in the direction of movement per se. If this analysis can be accepted, it is not without suggestion as to the significance of the return to gold at the old parity. On the other hand, the return to gold in 1927 has been variously characterized as long overdue,75 premature,78 and mistaken.77 While it would carry us too far afield to undertake a detailed analysis of these criticisms, a word may be said concerning the outstanding aspects of Argentina's brief gold standard experience. With respect to the trade side, the notable improvement of 1927 was carried forward with even more favorable results in the succeeding year. By the close of 1928 the export surplus nearly equalled the total of the net service liabilities, which meant that there existed a state of virtual equilibrium in the current items.7® But these tendencies were not to continue for long. A change, actually dating from late 1928, became marked in the first six months of 1929, the value of imports rising while that of exports declined. The second half of the year was but a continuation of this movement.7" A t this juncture, no less than throughout the period since 1920, the fate of the Argentine monetary unit was really tied precariously to the movement of long- and short-term capital. With respect to these items, movements favorable to the peso continued only until the middle of 1928. A combination of factors was responsible for this state of affairs. Easier money conditions prevailed in the Buenos Aires market, owing prin75 The Times of Argentina,

A u g . 29, 1927, p. 9.

76 Finance Minister Molina. See note 73 on the preceding page. 77 R. Prebisch, Apuntes

de Economía

Política,

Vol. II, p. 258.

78 Phelps, op. cit., p. 49. 79 Economic Review, June 1929, p. 81. T h i s publication is the English translation of the Revista Económica del Banco de la Nación Argentina.

40

ARGENTINE

EXCHANGE

CONTROL

cipally to the receipts of gold since early 1927. 80 One interesting result was that the cost of borrowing fell short of discounted expected increases in the prices of foreign currencies, leading many exporters to withhold a portion of their bills. This was in effect a movement of Argentine short-term capital to foreign centers, notably to the N e w Y o r k money market, where, in addition, boom conditions afforded earnings possibilities considerably more

favorable

than those

generally

available at home. 81 Other holders of Buenos Aires balances likewise shifted a good share of their funds to temporarily active foreign money markets. 82 T h e really decisive setback, however, occurred abroad. This w a s the virtual suspension of international lending in the latter part of 1928—in the words of Dr. Prebisch, at present General Manager of the Argentine Central Bank, " the primordial factor contributing to the progressive tension in the local money market."

83

T h e pressure

on the peso which followed continued uninterruptedly throughout the ensuing months, with gold shipments replacing the receipts of earlier date. By December 1929 the losses of specie since September 1928 cancelled " the additions to the country's metallic stock subsequent to its recent return to gold. T h e climax was reached on December 16, 1929, when President Irigoyen, fearing the violent currency contraction that would

follow

80 Ibid., June 1929, p. 91. From May I, 1927 to June 30, 1928 the net addition to the visible gold stocks was 411.7 million pesos, of which only 120.8 million went to the Conversion Office in exchange for notes, while 284.8 million were taken up by the dominant Bank of the Nation and 6.1 million by other banks. Ibid., p. 91. 8 1 Ibid.,

p. 91.

82 The transfer of funds to N e w York in late 1929, for the purpose of buying up securities offered at what were considered to be deflated prices, proved to be a particularly severe strain on the peso in the closing months of its gold standard career. Cf. ibid., December 1929, p. 169. 83 Ibid., October 1929, p. 137. 84 Peters, op. cit., p. 57, errs in stating that the Conversion Office was closed " before any considerable amounts of gold had been withdrawn."

THE

PESO:

1899-1931

41

85

further losses of gold as well as the inability to maintain, let alone increase, an already oversized floating debt, decreed the closing of the Conversion Office." Consequently, for the second time in less than three decades Argentina reverted to an inconvertible currency. 87 6 . 1 9 2 0 - 1 9 2 9 : C O M M E R C I A L P O L I C Y A N D S O M E F I G U R E S ON C H A N G E S I N T H E COMPOSITION A N D I N T E R N A T I O N A L D I S T R I B U T I O N OF A R G E N T I N E F O R E I G N

TRADE

Argentine commercial policy in the decade of the twenties had remained substantially unchanged from its pre-war status. There was one development in embryo, however, which foreshadowed important changes in this general sphere. Largely as a consequence of the prohibition of the United State Department of Agriculture on January 1, 1927, of fresh meat imports from parts of countries affected by livestock diseases, 84 considerable agitation developed in Buenos Aires for a commercial policy suggested by the slogan " buy from those who buy from us." In effect, this slogan represented an effort to augment Argentina's imports from its leading customer, Great Britain. As a retaliatory move against the United States, however, it was slow in bearing fruit. Prior to Argentina's institues Most of the gold drain resulted in a loss of the metal from the stock of the Banco de ¡a Nación, whose metallic holdings did not serve as a reserve behind the note circulation (in contrast to the Conversion Office). A s a result, the retirement of notes was but a small fraction of gold exports. 86 The legality of gold exports was left unchanged. 87 Relying on a mere two-sentence " treatment " of Argentine currency history from the pen of a Buenos Aires railway lawyer (G. E. Leguizamon, "An Argentine View of the Problem of Exchange Restrictions," Internationa/ Affairs, July-August 1933, p. 504), the League of Nations' World Economic Survey, 1932-33, p. 275, provides us with the following patently erroneous generalization : " For thirty years, from 1899 to 1929, the external value of the peso was stablized by the operations of the Conversion Office, which, in effect, administered a gold-exchange standard system based on London." It will be noted that each point mentioned is at odds with the facts of Argentine currency history since 18991 88 This included Argentina.

42

ARGENTINE

EXCHANGE

CONTROL

tion of exchange control, the record shows only one (abortive) attempt on the part of the government to curry favor with the country's livestock breeders who had been injured by the American prohibition on certain meat imports. This attempt took the form of the issue in November 1929 of a presidential decree reducing customs duties on artificial silk yarns and cloth from Great Britain and Northern Ireland. Since, however, the Argentine customs authorities interpreted the decree in the light of the most-favored-nation provision of the country's commercial treaties, rayon imports from the United States · · and other sources suffered no discrimination in this particular instance. Argentina thus closed the decade with a record of consistent adherence to the rule of most-favored-nation treatment. T h e period from 1920 to 1929 was also characterized by interesting developments in the domain of trade proper. Outstanding among these was the shift in the national origin of Argentina's imports. A s is shown in Table 3, the pre-World TABLE

3

PERCENTAGE OF ARGENTINE IMPORTS SUPPLIED BY THE F I V E LEADING COUNTRIES,

1920-1929

United States

United Kingdom

Germany

Average, 1910-14 . . . . .

14.3

31.3

... ... ... ... ... ... ... ... ... ...

33J2 26.8 22.1 20.9 22.1 235 24.6 25.4 23.2 263

23.4 235 235 23.8 23.4 215 19.3 19.4 19.6 17.6

1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 Source: Anuario,

France

Italy

16.7

9.4

85

4.7 95 13.5 13.6 125 115 113 113 11.6 11.5

5.9 5.7 5.1 6.7 6.6 6S 73 6.9 7.1 6.1

4.4 5.8 6.7 7.8 85 9.0 8.9 8.0 8.9 83

1939, pp. lxiv-lxxi.

89 This was in apparent conflict with the conditional most-favored-nation clause in the United States-Argentine treaty of 1854, for the records examined by the writer fail to disclose any American quid pro quo in this instance.

THE

PESO:

1899-1931

43

W a r commodity purchases from Britain represented virtually one-third of total imports. Germany supplied somewhat more than one-sixth while the United States supplied somewhat less than one-sixth of Argentina's requirements. In the post-war decade, however, Britain was supplanted by the United States as Argentina's chief supplier. About one-fourth of total imports in the twenties originated in the United States. T h e British share fell to about one-fifth, while Germany's dwindled to slightly more than one-tenth. O f especial significance was the widening disparity in this respect between the United States and Britain as the decade wore on. W a s there anything like a similar shift in the destination of Argentina's exports during the same period? The answer is in the negative. Truly accurate figures are not available to show unambiguously the totals for the various countries of destination.®0 A judicious interpretation of the figures that are available,' 1 however, shows that Britain remained far and away Argentina's principal customer during the i92o's. The American market improved relatively, while the German, French and Italian markets fell in relative importance. On the other hand, the combined Belgian and Dutch purchases of Argentine products had grown to a point where they were exceeded only by Argentine exports to Britain. Meanwhile the physical volume of Argentina's exports, shown in Table 4, reached substantially greater proportions than obtained in the preW o r l d W a r period in all categories except forest products. 9 0 Argentina's exports " to order " averaged 27.4 per cent of total exports from 1920 to 1929. Cf. Anuario, 1939, p. xlix. T h e countries of ultimate destination of " to order " shipments have been reported to the Argentine Statistical Bureau only since 1928. Since the import and export figures bycountries of origin and destination are strictly comparable only for 1928 and 1929, it has not been considered worth while to present the existing export data in tabular form. 91 Cf. Anuario,

1939, pp. l x i v - l x x i .

44

ARGENTINE EXCHANGE

CONTROL

TABLE 4 THE PHYSICAL VOLUME OF ARGENTINE EXPORTS, 1920-1929

(In thousands of metric tons) Agriculturai products

Forest

933

7,077

443

5

254

8,712

950 951 1,191 1,424 1,684 1,518 1.523 1,650 1,323 1,268

11,440 6,696 8.328 8,614

229 177 290 320 314 382 325 365 399

10 11 7 6 7

329 263 371 441

12,957 8,098 10,187 10,806

495 490 375 429 290

14,399 10,286

Livestock products Average, 1910-14 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929

.... .... .... .... .... .... .... .... .... ....

11,899 7,888 10,054 16,263 15,010 14,761

343

MinFish, eral game, etc

8 6 33 7 18

313

Total

12,283 18,740 17,029 16,703

Source : Anuario, 1939, p. xxxix.

Before bringing this section to a close, it may be remarked that if satisfactory data were available for the decade of the twenties, an analysis might be made of the quantitative relations of merchandise trade and capital movements to domestic activity, Argentine national income and the level of imports. Such an analysis would be of interest for several reasons. It would enable students to make some useful international comparisons involving more or less comparable magnitudes and processes. 82 And, more significantly, it would make possible some valuable comparisons of national income and trade movements in the period before and after Argentina inaugurated its regime of exchange and trade control. Moreover, we might be able, given the necessary data, to determine the factors controlling the level of imports into the Argentine. Although the 92 For example, with the study of Clark and Crawford for Australia. See Chapter XI, "A Chapter on the Multiplier," in Colin Clark and J. G. Crawford, The National Income of Australia (Sydney, 1938) ; and the critical discussions relating thereto in the pages of the Economic Record, notably those of J. Dyason (June 1939) and F. B. Horner (Dec. 1939).

THE

PESO:

1899-1931

45

value of imports varies from year to year, it may be some determinate function of the national income (including capital imports). I f so, a regression fitted to the scatter of points relating national income and imports would supply us with the statistical value for Argentina's marginal propensity to import 83 during this decade. In default, however, of the statistical material necessary for such a task, it is impossible to do more than merely mention a few interesting analytical problems. 7.

THE

P E S O FROM

1929

το

1931

Unlike the departure from gold in 1914, the reversion to paper fifteen years later took place in an international economic milieu probably unparalleled in the annals of modern economic history. T h e leading aspects of this period are too familiar to warrant further elaboration. S o far as the Argentine was concerned, however, the central features may be stated quite succinctly: drastically reduced capital imports, a sharp and sustained decline of world prices, and a rapid emergence of semi-closed economic areas—national and imperial. A s we have already seen, the phenomenon of drastically reduced foreign lending and its attendant consequences for a growing primaryproducing country had been experienced more than once during the lifetime of the last two generations of Argentinians. W h e n this phenomenon appeared more or less in isolation, serious problems arose. A n d their seriousness perhaps increased as Argentina gradually attained the status of an appreciable part of the world economy. T h e cushioning of these shocks, however, appeared to become more and more effective with each successive interruption in the influx of foreign capital. There is certainly no convincing evidence to the contrary. But picture, if you will, the magnitude of the adjustments required to cope with the threefold combination of capital stoppage, low and falling commodity price levels, and a marked and 93 This phrase was first used by Mr. Paish. See F. W. Paish, " Banking Policy and the Balance of International Payments," Economica, Nov. 1936, p. 414 ff.

φ

ARGENTINE

EXCHANGE

CONTROL

growing shrinkage in the volume of international and non-imperial trade! This state of affairs was to Argentina as novel as it was disturbing. But to return to the particular circumstances of the period immediately following Argentina's reversion to paper. Exports in 1930 created claims on foreigners to the extent of only about two-thirds of the 1929 figure. This was of course due only partly to an indifferent crop year. Meanwhile the value of imports declined but little,' 4 as Argentina's terms of trade became perceptibly more unfavorable.® 5 Formal foreign borrowing was relatively non-existent ; although involuntary lending, which appears to be a feature of the first phases of a period of peso depreciation in a regime of uncontrolled exchanges, took place on a considerable scale. That is to say, a rapidly growing number of foreign-owned utility and manufacturing concerns " converted " their earnings into idle deposit balances, hopefully awaiting a less depreciated peso before remitting to their offices overseas. Even though specific data on this point are lacking, it appears that between one-half and three-fourths of the adverse balance of payments registered in 1930 was covered by means of these involuntary loans. Notwithstanding the absence from the exchange market of important remitters, the peso underwent a persistent decline during the year, falling from 109.76 in January to 132.95 with respect to the dollar in the closing month." This period of growing deterioration in the Argentine's international position is not without its remarkable features in another related sphere—that of bank credit. Reference to this 94 Cf. Anuario, 1938, p. xxxiii. 95 In contrast to the favorable terms of trade just before and during 1928. Cf. Economic Review, June 1929, p. 91. 96 La Economía Bancaria Argentina, op. cit., p. 82. While it is undeniable that the remitters' accumulation of Buenos Aires balances at this time served to make the peso less vulnerable, this cannot be considered to constitute a net advantage to Argentina, since the same funds were within a year to exert a depressing influence by hanging over the market in great volume. But of this, more presently.

THE

PESO:

1899-1931

47

item would not be called for in the present summarization of the pre-exchange-control period were it not for the fact that it above all else was responsible for the maintenance of imports at a disproportionately high level, despite the peso's depreciation. In turn the banking position was a direct result of the government's deficit financing. A s an annual feature of the decade of the twenties, 87 and one hardly to be dispensed with at that late d a t e , " the volume of deficit borrowing was increased because of the suspension of specie payments." Government short-term borrowing at the banks, by facilitating the maintenance of a comparatively high level of national income, enabled the demand for foreign merchandise to be maintained in excess of that which would have prevailed in the absence of a fiscal deficit. The resulting lag in the decline in imports, persisting throughout 1930, aggravated the difficulties of the banks. During the early phase of the decline the brunt of the pressure on the banks fell on their reserves, the ratio falling from 24.3 per cent in December 1928 to 14.9 per cent a year later. W i t h respect to the leading items, we find that during 1929 visible gold stocks declined by 409.4 million, 100 of which only a minute fraction, 13.2 million, was offset by a reduction in the note circulation. Thus 396.2 million represented the drop in bank reserves. 101 Lacking a central banking system, 102 and with the government still engaged in a policy of expansion, the reserve position of the banks obviously necessitated a credit policy not in line with that considered desirable by the political 97 See Peters, op. cit., p. 104. 98 The party in office had been at the head of the Federal Government throughout the 1920's. 99 Cf. Phelps, op. cit., p. 56. 100 A part of which represented holdings of the private trading banks. 101 Cf. Economic

Review,

Jan. 1930, p. 16.

102 The Central Bank of the Argentine Republic was established in 1935. Prior to that date some central bank functions were undertaken by the Banco de la Nación, but its open market operations were of an extremely limited character (to mention but one aspect of the matter).

48

ARGENTINE

EXCHANGE

CONTROL

authorities. As a result the latter temporarily eased the banking situation, first by securing a small London loan and then reviving—in January, 1930—the war-time emergency measure of permitting the local issue of notes against the cable advice that gold had been deposited in gold standard countries to the account of the Argentine Embassy. It will be recalled that during the war foreign deposits of the yellow metal at the legations had their origin in positive trade balances; but in 1930 the banks obtained title to the metal by drawing on their foreign exchange holdings and by increasing their debit balances with foreign institutions.10® Within a few months, however, a part of their foreign exchange holdings was restored. Thus, by obtaining a 50 million dollar loan in June, the government was able to reduce its indebtedness to the Buenos Aires banks by transferring to them most of the New York balances derived from the loan.104 But this transaction did not improve the situation either of the banks or of the peso for long, in view of the steady demand for both Buenos Aires bank balances and foreign exchange. Once again we encounter the phenomenon of widespread remittance postponement; for with the termination in August of the emergency legation mechanism and the almost steady decline of the peso that followed, more and more reports were received of the covering of import obligations by means of foreign borrowing by importers, pending the increase in local bill offers in the forthcoming export season.105 When the Uriburu Government came to power in early September, pressure on the peso was further eased, first, through the adoption of the policy—designed to lessen the burden of the external debt—of meeting the foreign debt service in gold, and, a short time later, by permitting the Banco de la Nación to sell drafts against the Conversion Fund held 103 Economic Review, Feb.-March 1930, p. 34. 104 Ibid., June 1930, p. 85. 105 Ibid., Oct. 1930, p. 151.

THE

PESO:

1899-1931

49

in London. 1 0 ' Even these measures, however, failed to retard the decline, for the cost of

foreign currencies in the final

quarter of 1930 rose at about the same average monthly rate as earlier in the year, that is, at just under 2 per cent per month. B y that time the currency was quoted at about 25 per cent under parity. It may be added, in this connection, that these measures of alleviation constituted additional disequilibrating

factors

since they prevented the restrictive influence on imports that would have

resulted

from additional

peso

depreciation. 107

Nevertheless, with the government continuing to withdraw specie from the Conversion Office for its foreign debt service, the contraction in note circulation was such as to prompt the government at long last 1 0 8 to resort to the 1 9 1 4 rediscount law. It was thus again legally possible to issue notes in exchange for discounted commercial paper not exceeding 180 days usance so long as the gold coverage behind all notes did not fall below 40 per cent. The decree making effective the rediscount law expressly stipulated that the measure was not to be used to encourage the formation of new enterprises but was to be confined to the maintenance of existing economic activity. 109 A t this point let us attempt to bring into relief what appear to have been the salient features of the decade of the twenties. There were few outstanding parallels with the pre-war decade, at least so far as the decisive factors affecting the peso are concerned. In the first place, adjustment to the disturbed conditions resulting from the war boom had to be made in an in106 Economic Review, Dec. 1930, p. 187. 107 The same argument is relevant to the argument concerning the wisdom of closing the Conversion Office in 1929. The disequilibrating feature of these measures is recognized in one official analysis. Cf. La Obra Financiera del Ρ oder Ejecutivo Nacional de 1932 a içj7, chapter on exchange control (Buenos Aires, 1938). 108 April 1931. 109 Economic Review, April 1931, p. 39.

50

ARGENTINE

EXCHANGE

CONTROL

ternational milieu whose chief characteristics, as contrasted with those of the opening years of the century, were currency instability and general uncertainty concerning the pattern of future international

trade relations. W h i l e cost, price

and

capital-flow variables in the earlier period tended by and large toward some sort of equilibrium in a setting of relative constancy of relationships outside the Argentine—particularly in E u r o p e — t h e situation following 1920 had to be met and adjustments made while those countries with which A r g e n t i n a w a s most closely tied economically were in an unstable state. I f an analogy in the j a r g o n of economics will be pardoned, the problem at this stage was hardly one of the partial equilibrium sort. In the second place, the decade was characterized

by

chronic budgetary disequilibrium, facilitated, as we have pointed out above, by an influx of capital which went principally into nonproductive uses. Budget basically

democratic

flexibility

societies

perhaps

of the type f o u n d in only

in periods

of

emergency w a s indispensable in the face of a possible abrupt cessation of this inward stream of funds. But it w a s easier f o r Argentinians to make reference to the country's bright future, with the result that weaknesses in the fiscal position were only too eagerly patched up with the aid of

funds of

foreign

origin. 1 1 0 T h e undertaking of gold standard commitments at the old parity under these circumstances, therefore does not appear to have been a happy decision. N o r w a s the outcome of the undertaking likely to be more favorable so long as the nation had to endure a singularly inflexible note-issue system. Finally, of no mean importance to a country such as A r g e n t i n a was the increasing difficulty of disposing of normal while protected production in areas stimulated more

by

abnormal

world

war

virtually undiminished levels. A

output

considerably

demands w a s continued

at

substantial improvement in

110 Cf. e. g., L. R . Gondra, Problemas Sociales y Económicos del Momento

(Buenos Aires, 1934), passim.

THE

PESO:

1899-1931

51

export income through increasing volume, therefore, was not a practicable alternative. 111 It will be noted that these factors were of a comprehensive type, and that the Argentine was not the only important primary producing country to be confronted by this general pattern of forces. Irregular crop failures, which in varying degree are among the ordinary problems of most producers of primary products, were relatively unimportant. As a matter of fact, such failures did not bulk large at any time during the decade under review. Argentina, however, faced in the late twenties with fundamentally altered conditions of international trade resulting from a virtual cessation of foreign lending and a drastic decline in agricultural and livestock prices,112 and with cost and income levels which had not spurted relative to world levels, found that she could not much longer maintain the peso on a gold basis. In such circumstances an unchanged rate of exchange would simply have constituted an additional disturbing factor in the set of forces shaping Argentina's balance of payments. It would have been superimposed, so to speak, upon the disturbances arising from basic capital and commodity price movements. Only deflation of a socially disruptive character 111 The application of purely formal propositions of so-called atomistic competition to balance-of-payments adjustments of the sort indicated in the text leads to misleading conclusions when individual agricultural countries are tacitly regarded as homogeneous entities. Thus Heuser holds that because of the small influence which changes in the supply of a single country have on the world price of particular agricultural commodities, an increase in export offers from a single country is likely to increase the value of this country's exports. Cf. Η. Κ. Heuser, Control of International Trade (London, 1939), p. 58. The unreality of such reasoning is obvious in connection with (say) Argentine corn and flaxseed, of which this River Plate producer is the world's leading exporter. The elasticity of demand for some of Argentina's principal exports in this period of world agricultural depression appears to have been nearer zero than the coefficient of greater than one suggested by Heuser's statement. 112 See the excellent brief discussion with respect to Australia in W. B. Reddaway, " The New Exchange Rates," Economic Record, Dec. 1936, pp. 188-189.

52

ARGENTINE

EXCHANGE

CONTROL

would have made possible any prolonged adherence to gold. 111 Thus a pronounced rise in the exchange rate was imperative if the serious effects—no small part of which would have been of the capital flight variety—of the fundamentally altered conditions of international trade were to be partially offset. The monetary authorities of this pre-central bank era can hardly be said to have revealed, at any rate in published sources, a firm grasp of the nature of the forces adversely affecting the peso. Perusal of the authoritative Economic Review, organ of the Banco de la Nación, reveals that much more concern was shown with respect to month-to-month changes in such items as gold stocks, reserve ratios, notes outstanding, domestic and foreign balances, specie shipments and in the immediate factors behind these changes than in the underlying forces in play. This perhaps may be explained in part by the government's preoccupation with the increasing difficulty of servicing its external debt in depreciating pesos. In retrospect it does seem that excessive attention was paid to this budgetary aspect, important though it was. T o a greater extent, however, the comparative superficiality of the official analyses of the 1929-31 period appears to stem from the lack of appreciation of the repercussions on the Argentine economy of the fundamentally altered conditions of international trade. This in large measure 1 1 4 accounts for the abortive stabilization 1 1 5 at about 25 per cent below dollar parity between March 1 2 and April 15, 1 9 3 1 , after more than a year's none-too-successful experience with various depreciation-retarding expedients. Occurring when the peso showed temporary buoyancy 1 1 6 at the height of the export 113 This contrasts with the views of Phelps on this score. H e exaggerates the capacity of monetary contraction in this period to effect the degree of adjustment required to restore equilibrium in the balance of payments. Cf. his treatment, op. cit., pp. 56-57. 114 Exchange " window dressing " on the eve of an impending foreign funding loan also was a factor, though of less importance. Cf. Economic Review, Feb.-March, 1932, p. 36. 115 Ibid., April 1931, p. 47. 116 Cf. La Economia Bancaria Argentina, op. cit., p. 82.

THE

PESO:

1899-1931

53

season, this overvaluation served principally to expedite the repayment of dollar and sterling advances made at a less depreciated peso by foreign banks in Buenos Aires. 117 The rate at which these loans were cancelled was such, and the supporting specie shipments were so heavy, 118 that the Banco de la Nación was compelled to bring the experiment to an early end in order not to endanger that portion of the metallic reserve required as coverage for the additional notes to be issued during the corn-harvesting period. Moreover, a net social loss was involved; for the Treasury's loss in the servicing of its foreign debt, a loss represented by that part of the gold shipments traceable to the stimulus given to private demand for foreign currencies, was reckoned as the difference between parity and the stabilized rate. On the other hand, the magnitude of the inducement given to most private remitters consisted merely in the difference between two exchange rates, both of which were depreciated. Disregarding possible adverse " psychological " effects, it would actually have paid the Treasury— paradoxically enough—to offer to private remitters in this case a small bonus for postponing their purchases of foreign currencies. With this we bring to a close our survey of the leading pre-exchange-control developments and the measures taken by the authorities to soften the impact of peso depreciation on the Argentine economy. For virtually two years both Argentine firms and foreigners having investment and trade interests in the country had to submit to general currency uncertainty and to the frequent abrupt introduction of alleviating measures of 117 The temporary stabilization cost the Treasury approximately 165 million dollars in specie exports. Cf. J. Vido, " El Control de los Cambios en la República Argentina," Revista de Ciencias Económicas, April 1936, p. 284. 118 That these debtors appreciated the value of discharging their foreign obligations as quickly as possible during the peso's marked overvaluation may be gathered from their eagerness to obtain advances from Buenos Aires banks in spite of borrowing rates in the neighborhood of 10 per cent. Cf. Vido, op. cit., p. 285.

54

ARGENTINE

EXCHANGE

CONTROL

dubious value. Y e t this condition of affairs was far from novel, for we have seen that a more or less comparable situation had arisen from time to time since 1 9 1 4 , to say nothing of the monetary eruptions to which the economy was forced to adjust itself before the turn of the century. Y e t the evidence does not indicate that the authorities felt they had had enough of piecemeal repairs. Their next important step, the initial direct move in the field of control which forms the principal subject-matter of this study, appears to have been keyed to no more permanent objectives than was any of the varied currency changes and innovations undertaken in recent decades. F o r the fall of sterling in September of 1 9 3 1 struck Argentina with so devastating a suddenness that the monetary authorities had time for hardly more than improvisation. The decline of the pound, following the abandonment of the gold standard, also deranged the peso's ties with a number of currencies, thus increasing the disturbing complications of persistent depreciation. A series of repercussions followed. Foremost was the portentous capital flight which took shape principally in the practice of a handful of large cereal export houses of retaining their export proceeds in foreign centers. 11 ® This speculative retention of almost one-half of Argentina's supply of foreign currencies was virtually paralyzing in its effects. 119 Cf. La Nación, Oct. 6, 1931 and Vido, op. cit., p. 285. These two sources are explicit on this point, in contrast to formal official utterances which are guarded to the extent of concealing the existence of this crucial type of capital flight. Thus between-the-lines reading is necessary to appreciate that the announced replacement of an excess of demand by an excess of exchange offers in the second half of October 1931 (cf. Economic Review, Oct. 1931, p. 146) was due as much to informal government requisitioning of exchange by forcing the exporters to deliver stipulated blocks of foreign currencies as to the combination of ( 1 ) exchange rationing and ( 2 ) temporary foreign borrowing by regular Argentine clients of overseas export houses. On these general matters, see also E. Bader, Die argentinische Devisenbewirtschaftung, pp. 39-40. Prof. Baudin, visiting lecturer pointed out that the concentration few export houses gave the latter the non-gold peso. Cf. La Nación,

at the University of Buenos Aires, has of exchange offerings in the hands of a a large measure of de facto control over Jan. 11, 1932.

THE

PESO:

1899-1931

55

Official exchange rationing, instituted on October 10, 1931, constituted the authorities' principal response to this intolerable state of affairs. The unprecedented exodus of funds, regarded as a very serious but temporary phenomenon, was felt to involve too heavy a drain on Argentina's dwindling monetary resources to permit adjustment to be worked out in an uncontrolled exchange market.

CHAPTER THE

FIRST

STAGE

OF

II EXCHANGE

CONTROL CONFRONTED with a marked diminution of the supply of foreign exchange bills during the crisis of sterling in the fall of 1931, and given ( 1 ) the determination of the government to maintain the servicing of the foreign-held national debt, ( 2 ) its reluctance to exhaust its gold holdings through making foreign debt payments in specie, and ( 3 ) its no less determined opposition to the peso's plunging any further into a seemingly deepening abyss, the government concluded that there was nothing worthy of consideration as an alternative to direct intervention in the foreign exchange market. Direct intervention, however, took place only after attempts to feel the way, so to speak, with voluntary accords had fallen through. News of Britain's abandonment of gold had no more than been received when President Casal of the Banco de la Nación, acting at the behest of the government, convened the managers of all banks in Buenos Aires for the purpose of meeting the exigencies of the exchange crisis. 1 It was decided by agreement to shift the currency for buying operations from the pound to the dollar, the N e w York-London cross rate furnishing the basis for quoting sterling. A n Exchange Commission, consisting of three bankers and two representatives of the export houses, also was established. T h e Commission was to quote dollar rates daily, which were to be adhered to by voluntary agreement among the banks. 2 More important for the moment, 1 This paragraph is based for the most part on La Nación's editorial of Sept. 25, 1931.

interesting

2 It should be pointed out that exchange control was hastened as well by the emergence of " black " peso markets abroad during the period of voluntary exchange pegging. Peso offerings at up to a 20 per cent discount on the latter are a matter of record. Cf. Banco de la Nación, Memoria y Balance General del Ejercicio 1931, p. π ; Vido, op. cit., p. 293 ; and Bader, op. cit.,

Ρ· 32.

56

FIRST

STAGE

OF

EXCHANGE

CONTROL

57

however, was the role of the Commission in bringing the exchange-holding exporters " into line." F o r the principal objective of the authorities was that of attempting to corral exchange arising from current exports by inducing the grain shippers (in particular) to cooperate with the banks during a period s in which all but patently speculative demands for exchange were to be met at a pegged level. Informal bank scrutiny of exchange purchasers was all that was contemplated as far as the demand side was concerned. Unfortunately the necessary cooperation f r o m the grain houses was not forthcoming. Shipments on consignment, a type of transaction handled in the main only by the largest exporters, permitted cargoes to remain afloat for relatively lengthy periods as the goods moved between overseas subsidiaries (or agencies) of the Argentine export houses pending announcement of sales now and then when the peso had momentarily firmed. Such tactics, carried out by concerns in effect manipulating a not inconsiderable part of both the supply and demand strings governing the behavior of the peso, proved indigestible in the exchange crisis climaxing the post-1929 period of depreciating currency—in addition to being irritating in the extreme to the non-parliamentary Provisional Government. Ι.

THE

EXCHANGE

CONTROL

COMMISSION

W i t h vigorous action regarded as most urgent, a decree of October ί ο , 1931 carried Argentina into what has been referred to as the first stage of her exchange control experience. 4 Since the difficulties of the crisis have been diagnosed as stemming principally from the type of capital flight mentioned above, i. e., an " absolute " as opposed to a relative 5 shortage 3 The country was on the eve of the principal export season. 4 See B. Cornejo, "Les Trois Etapes du Controle des Changes en Argentine," Société Belge d'Études et d'Expansion, No. 115, April 1939, pp. 170-174· 5 La Nación, Oct. 6, 1931. Although this language is hardly felicitous, " absolute " here refers to a situation in which the value of current exports

58

ARGENTINE

EXCHANGE

CONTROL

of export bills, it would have been supposed that the Exchange Control Commission established by this decree would have systematically attacked the shortage at its source. Instead they appear to all intents and purposes to have regarded this condition largely as unmanageable β and proceeded to a detailed attack on the " excesses " which appeared on the demand side. A l l remitters save the government itself were severely restricted. Here again we see the essentially piecemeal 7 character of the remedy provided, perhaps explainable in terms of ( i ) the lack of comprehension in official quarters of the magnitude and complexity of the novel task of efficiently controlling the foreign exchanges and ( 2 ) the absence of appropriate administrative machinery, much of which would have been on hand had Argentina possessed a central bank mechanism. Although the authorities did not profess to be following any well-rounded program of control, the October measures markedly tightened some of the more glaring weaknesses of the original voluntary policing of the foreign exchanges. This policing suffered f r o m the usual difficulties confronting cooperative proposals presenting lucrative openings to recalcitrant members. Under the October 10th decree, however, the Exchange Control Commission was given authority to overcome precisely these difficulties. 8 T h e Commission had two basic functions to perform, one covering the gaps on the demand side and the other those on the supply side. A s to the former, it was ordered to eliminate all sales of a speculative character and only authorized sales were to be permitted ; while with respect to the deficiencies of supply, it was to attempt to impede the retention of exchange by Argentine exporters. The considerably exceeds bill offers coming on to the market. A situation roughly similar to this obtained in 1925 and 1928. β Except for the appropriation of exchange cited in footnote 119 on p. 54. 7 See Vido, op. cit., p. 283, for a similar conclusion. Sr. Vido, formerly manager of the exchange department of a large Buenos Aires bank, was one of the members of the Exchange Control Commission. 8 Our analysis follows closely that of Sr. Vido, op. cit.

FIRST

STAGE

OF

EXCHANGE

CONTROL

59

handling of demand was further divided into the matters of rates and details of rationing. Broad powers were vested in the Commission in this regard. The rates to be fixed were to be established with a view to obviating erratic fluctuations, while the sensitive task of apportioning available exchange was based on the elastic rubric that such apportionment " be consistent with the country's general interests." 9 The fixing of exchange rates and the operations of the banks during the first part of this initial stage of exchange control provide further evidence of the manner in which the authorities were groping their way towards a workable pattern of control. When the Commission took over operations under the October decree the dollar rate had moved to 188 pesos gold. A t first this rate was retained by the Commission, as it concentrated its energies in whittling down the claims of demanders. Meanwhile the mandatory cession of blocks of foreign exchange held by some large exporters, pending rate adjustments after the latter's books had been inspected, so improved the relative supply position that the Commission was able to sanction successively improved rates. 10 Exchange offers were shortly made at as low as 1 5 5 gold pesos. (The banks, it may be added, were still buying and selling for their own accounts, the only exception being that their buying rates and margins were governed by selling rates established by the Commission). With this rapid appreciation of the peso we find that the agriculturists again—as was the case notably in 1899 and 1927—saw a menace to the peso value of their exports. This prompted the authorities to set a fixed limit to the currency's appreciation at 160 gold pesos per 1 0 0 dollars. The direction of peso movements being of course an unknown, they also found it advisable, 9 With respect to the possible elasticity and discriminatory application of this rubric in the early exchange control period, it may not be amiss to point out that finance ministers have on several occasions since then publicly rejected low United States bids on (e. g . ) large steel orders on the grounds that Argentina's general interests dictated placing the orders elsewhere. 10 This and the succeeding paragraph draw heavily on an interview granted to La Nación by Sr. Vido. See La Nación, S e p t 18, 1932.

6o

ARGENTINE

EXCHANGE

CONTROL

in order to assuage import interests, to establish a depreciation limit at 171 pesos. Within this range rate movements might be permitted at the Commission's discretion. The principal buying in late October and early November was for the account of the Treasury, whose activity was based on the advice that it waste no time in providing itself with exchange needed to meet its forthcoming foreign debt payments. It was not long before private remitters became cognizant of the Treasury's activity, the pressing of their own petitions for exchange being speeded up in consequence. Rate increases that followed continued until the permitted upper limit of 171 was reached on November 24. There the rate remained, with a constant gold (dollar) value, for the duration of the first stage of Argentine exchange control. 11 Turning to the allocation aspect, for which unfortunately many important details do not appear to be available to the unofficial observer, we find that definite priorities were stipulated—in line with precedents established prior to the control era. In its original decisions the Exchange Commission laid down that first call upon available supplies resided in the g o v ernments—national, provincial and municipal. N e x t in order came the category of " indispensable imports," while third in rank were the remittances of public utility companies and immigrants. The remaining types, travellers' expenses, nonindispensable imports and payment for goods imported prior to October 13, 1931, were to be granted exchange in the order mentioned. Protectionist policy was declared to have had nothing to do with the order of preference. 12 Moreover, this original scheme for the distribution of exchange had its basis exclusively in the nature of the items for which Argentinians had incurred liabilities in foreign currencies, irrespective of the country to which payment was to be made. Significantly enough, this internationally non-discriminatory basis lasted less than a 11 In March 1933, upon the declaration of a universal banking holiday in the United States, the (unchanged) peg was shifted to the French franc. 12 Cf. Vido, La Nación,

Sept. 18, 1932.

FIRST

STAGE

OF

EXCHANGE

CONTROL

6l

quarter of a year. A Finance Ministry Resolution of January 5> I932 quietly enjoined the Commission to consider Argentina's balance of payments with the country to which the funds were to be transferred before granting exchange permits." Although this criterion was shortly to prove overriding, widespread concern over the possible consequences of a repudiation of the most-favored-nation clause in its commercial treaties seems to have rendered this injunction purely nominal for at least several months. It nonetheless marked a shift to a policy fraught with extraordinary implications. Once the demander of foreign exchange had been classified along the lines just mentioned, the problem of obtaining the permit to purchase exchange from authorized banks and dealers was reduced to a matter of patient waiting; 1 4 this was at any rate true for the first half year or so. No abridgment, however, of the individual's right to effect the physical importation of merchandise occurred during the first stage of Argentine exchange control ; instead restrictions were placed solely on the right to acquire (official) exchange at the pegged rate of 171 gold pesos. It is in this context, namely, an absence of import control as such, that the matter of peso valuation assumes crucial importance. But before taking up this aspect, a word may be said concerning one development which came to assume increasing importance to overseas suppliers of Argentine importers. Permits to purchase exchange were not being granted on anything like a systematic and predictable basis during this early period. Difficulties encountered in obtaining permits arose from either or both of two circumstances. In a great number of instances the official commodity classification, set up ac-

2

13 Vido, op. cit., Revista de Ciencias Económicas,

p. 491.

14 Ex-Finance Minister Pinedo, however, has disclosed the existence of some favoritism in the granting of considerable exchange to certain travellers while simultaneously denying trifling sums to many immigrants. See El Plan de Acción Económica ante el Congreso Nacional (Buenos Aires, 1934), pp. 28-29.

Ó2

ARGENTINE

EXCHANGE

CONTROL

cording to the several differentially treated categories, was subject to sudden modifications as the authorities learned more and more about the intricacies of the import trade—modifications o f t e n embarrassing to the importer who based his plans on the assumption that his goods fell within a favored category. On the other hand, numerous delays in the granting of exchange permits were due to fluctuations in the quantity of available exchange. In these circumstances, many American exporters (as well as other foreign suppliers) very soon agreed to allow their credit-worthy Argentine importers to obtain the documents giving title to their shipments upon a provisional deposit with Buenos Aires banks of pesos at the ruling fixed 1 7 1 dollar rate, even though the importers in question were not in possession of the requisite exchange permit. 1 5 In many cases such permits were obtained a short while a f t e r receipt of the goods, thus putting the shipper in funds in his own currency. In probably just as many cases, though hardly to the same value, however, the importer's provisional payment in pesos represented the limit to which he was permitted to go. When reduced to a net figure, these provisional payments went to make up the mass of the frozen category, blocked pesos. L e t us return to the important question of peso valuation. W e have pointed out that the Exchange Control Commission at first established a rather wide r a n g e — 1 6 0 to 1 7 1 — o f permissible rate fluctuation in the turbulent days of October 1 9 3 1 . Matters of expediency, as distinct f r o m anything worthy of being called analysis, dictated the adoption of these two figures, the upper of which shortly became the sole effective official rate. It is small wonder, therefore, that the forces making f o r the maintenance of disequilibrium in Argentina's international accounts were not only unchecked but actually augmented by the Commission's adherence to a fixed rate of dollar exchange. F o r in 1 9 3 2 import control in the strict sense was still a thing 15 That the protectionist aspect of exchange control was subordinated to the purely currency exigencies of this early period is no more clearly demonstrated than by reference to this feature.

FIRST

STAGE

OF

EXCHANGE

CONTROL

63

of the future, what checks there were being principally those voluntarily imposed by farseeing foreign suppliers who refused to make regular shipments against " sight " drafts in the light of the steadily growing overvaluation of the peso. 16 It had not yet dawned upon the monetary authorities that the blocking of funds under a controlled inconvertible currency was in reality an even more accurate index of fundamental overvaluation than an equivalent loss of specie and/or import of short-term capital under a gold standard regime. 17 The magnitude of the overvaluation in question was of small importance—equilibrium rates of exchange cannot be calculated overnight—; it mattered vitally, however, to know that the peso was unmistakably overvalued. It is the writer's belief that the authorities would have been able to rectify this condition of affairs in due course had not an ominous set of circumstances foreign to Argentina virtually forced the freezing of the exchange pattern pending some crystallization of overseas developments. F o r the control up to about mid-1932 differed from the phenomenon of peso depreciation following the 1929 abandonment of gold only in that ( ι ) discrimination in the allocation of exchange was carried one step further and ( 2 ) the more blatant forms of capital flight were brought under control. T o be sure, these were not unimportant developments. But, given the freedom of effecting imports of merchandise, they could hardly have been sufficiently corrective as long as the selective influence of 16 One large American motor producer refused to send more parts for assembly in 1932 until arrearage in exchange was remitted by the Argentine branch. Cf. The Economist, Aug. 20, 1932, p. 354. 17 Sr. Vido, op. cit., p. 499, " d e f e n d s " the Commission's adherence to the 171 rate on the grounds that ( 1 ) the persistent excess of demand made it necessary if " sporadic movements were to be avoided," and (2) control would have been technically impossible in the absence of a stable rate. Surely these are hardly more than assertions. The first point is but one manner of describing the overvaluation discussed in the text, the sporadic movements aspect being largely irrelevant given the existence of control. With respect to the second point, it is sufficient to mention that a fixed rate more closely approaching the " equilibrium " level could more easily have been stablilized.

Ó4

ARGENTINE

EXCHANGE

CONTROL

exchange-rate variations was ruled out of the picture. T h e Commission erred disastrously, therefore, in adhering to the fixed and overvalued 171 rate. 2. E X C H A N G E DISCRIMINATION

IN

EMBRYO

Argentina's principal foreign customer, after more than one attempt to obtain out-and-out preferential treatment in the Argentine market, 18 succeeded by early 1932 in laying the groundwork for the attainment of special advantages over other suppliers of the market. W h e n Lord D'Abernon headed a British commercial mission to Argentina in 1929, the chances were exceedingly slim that he would be able to obtain a wide range of exclusive commercial preferences of a bilateral tariff sort from the Irigoyen Government, especially in view of Argentina's adherence to the unconditional most-favored-nation clause in many of its treaties. Y e t despite D'Abernon's failure to obtain exclusive preferential treatment of a far-reaching character, he did succeed in winning over the aged President Irigoyen to a most amazing agreement. B y dangling the threat of wholesale imperial preference 1 9 before the latter's eyes, the head of the Mission persuaded the President to sign, on November 8, 1929, an accord whereby reciprocal credits were to be opened by the United Kingdom and Argentine governments for 100,000,000 gold pesos each. F o r its part the Argentine government bound itself to purchase for the account of the Argentine State Railways and other national departments various supplies and materials produced or manufactured in the United Kingdom. The British government, in turn, was to undertake arrangements whereby its subjects would " match " the Argentine acquisitions in the United Kingdom by making comparable purchases of Argentine cereals and other products. 20 18 Reference is made to the D'Abernon Commercial Mission of 1929. 19 Cf. The Report 0} the British Economic Mission to Argentina, and Uruguay (London, 1930), p. 8.

Brazil

20 For some further details, see the informative description of this and related matters in G. J. Eder, " Current Trends in the International Trade

FIRST

STAGE

OF

EXCHANGE

CONTROL

65

Actually, however, this agreement amounted to the imposition of terms upon Argentina, for Britain's annual purchases in the Argentine had already been aggregating several times the sum stipulated. T h i s unilateral character was the subject of considerable criticism on the part of the Buenos Aires press. T h e provisions of this agreement shortly fell into desuetude, however, largely in consequence of the chain of events having its inception in the departure from gold convertibility in December 1929. Y e t except for two circumstances the D'Abernon Mission might have been able to obtain rather enduring commercial preferences over and above the non-recurring purchase agreement. In the first place, in addition to the fact that agricultural prices were still satisfactory, Argentina was not yet menaced by the possible loss of important overseas markets for its leading exports; f o r the relative prosperity of the decade then in its closing years was viewed in ruling circles as only temporarily disturbed by a more or less regular cyclical decline. Second, British commercial policy still had not departed in any substantial way from its essentially liberal basis. Agrarian protectionism at home and the marked favoring of Empire producers competing with Argentina were only in their gestation period. 21 T h e reversal of these conditions, indeed the fundamental alteration in the conditions of international trade, which took place in the intervening period provided the basis for a drastic recasting of Argentina's attitude toward arrangements of the D'Abernon type. Unprecedented as it was, the decline of agricultural and livestock prices played a secondary role in this of Argentina," International Conciliation, IV, June 1931, pp. 432 fr.

Studies in W o r l d Economy, No.

21 In the words of Mr. Runciman, President of the Board of Trade, " I believe that one reason why nothing came of [the D'Abernon Mission] was that we had no means of exercising any pressure. W e are now in a position to do that." Parliamentary Debates, House of Commons, Vol. 277, May io, 1933, col. 1544.

66

ARGENTINE

EXCHANGE

CONTROL

shift of attitude; for if this had been the only important disturbing factor, balance of payments equilibrium might still have been attained by means of tolerable import restrictions. But the wide publicity in Argentine newspapers in late 1 9 3 1 and early 1 9 3 2 concerning the forthcoming Ottawa Imperial Economic Conference, in which prominence was given almost daily to the great restrictions on the entry of Argentine produce into the United Kingdom that would inevitably follow a scheme of imperial preference, literally frightened the politically-dominant groups which believed their well-being to be indissolubly tied up with the maintenance of at least relatively free access to their principal foreign market. Together with a previously feeble campaign by some agricultural sections urging Argentina to " buy from those who buy from us " 21 —literally meaningless, but implying purchases proportionate to sales—a slogan now suddenly assuming the proportions of panicky " realism," these subtle promptings undoubtedly paved the way to the granting of temporary concessions and within a year to Argentina's espousal of the practice of narrow bilateralism on a large scale. Since there were no obstacles to the placing of orders abroad prior to late 1933, the shift of attitude favorable to the consideration of preferential bilateral commercial arrangements could have involved the Exchange Control Commission in discrimination against merchandise from certain countries, notably the United States, only in the matter of granting exchange other than in proportion to the quantities applied for. T o what extent did such discrimination exist in 1932 and 1 9 3 3 ? Unfortunately no brief and unambiguous answer can be given to this query. What little data that exist are too fragmentary to serve as a simple basis of generalization ; nothing published by the Commission, for example, is of value in resolving this question. Possibly some light may be had, however, by a comparison of the size of funding loans making available to British and American creditors the pound and dollar equivalent of 22 See above, p. 41.

FIRST

STAGE

OF

EXCHANGE

CONTROL

67

funds blocked in Argentina prior to late 1933. According to these figures

23

the volume of British blocked claims was slightly

more than three times as great as that for the United States. B u t when it is remembered that imports from the United K i n g dom and British non-self-governing colonies during the first stage of exchange control were approximately twice those from the United States, 24 and that the planned remittances of the British railways and other public utilities together with those of English concerns ranging from insurance companies and department stores to livestock and sugar estates probably exceeded the 1931 and 1932 Argentine debits to the United States on merchandise imports, 25 it may be no exaggeration to affirm that the ratio of exchange granted to that applied for was somewhat less in the case of those remitting on commercial and private account to the United States than in the case of those similarly remitting to the United Kingdom. T h e ratio was in all likelihood roughly equal through the first half of 1932, for nothing in the pronouncements of the authorities up to that time provides any basis for assuming that bilateralistic policies of the quasi-clearing variety were seriously entertained. Subsequent to this period, however, especially during the Roca Mission negotiations in early 1933, it may be presumed that the authorities were granting exchange in a decidedly more liberal 2 3 S e e t h e official publication : La de

1932

exchange

a 1937

(Buenos

control.

The

Aires,

respective

Obra

Financiera

Ministry

of

figures

were

del Poder

Finance,

Ejecutivo

1938), c h a p t e r

on

£14,820,000 a n d 23,253,894

dollars. 24 F o r a w o r k i n g a p p r o x i m a t i o n t o t h e s e m a g n i t u d e s , cf. Anuario,

1938,

p. l x i v . 25 S o m e i n d i c a t i o n of this relationship m a y b e h a d f r o m the figure s h o w i n g the distribution of official e x c h a n g e f r o m N o v . 29, 1933 t o A p r i l 30, 1934. D u r i n g t h i s p e r i o d B r i t i s h public utilities a l o n e r e m i t t e d 5 p e s o s f o r e v e r y 3 t r a n s f e r r e d in p a y m e n t f o r A m e r i c a n m e r c h a n d i s e . S e e El Económica

ante

el Congreso

Nacional,

1934, p. 4.

Plan

de

Acción

68

ARGENTINE

EXCHANGE

CONTROL

fashion in payment for British than for American merchandise.2* We may say in summary that the degree of control over the exchanges exercised by the government during 1 9 3 1 - 3 3 appears in retrospect to have been but the continuation of a series of improvised interventions occurring at frequent intervals since 1929. Although the evidence is by no means incontrovertible, the indications are that the authorities slowly came around to convert exchange control from its original purpose as an instrument of monetary policy to an easy device for enforcing a discriminating commercial policy. Above all else, however, the first stage of Argentine control was characterized by a marked overvaluation of the currency and the resulting accumulation of blocked commercial claims. With the authorities disturbed by the prospects of further depreciation, the peso was held to a constant gold value for virtually two years without official recognition until late in 1933 that the success of such a policy would depend on the effective restriction of rights to contract abroad and not on limiting access to the pool of foreign exchange while leaving individuals and firms free to import goods without restriction. 26 The treatment of Japanese and American imports at this time being roughly similar, since Argentina's balance of payments was decidedly adverse with respect to both, further evidence of exchange discrimination in this first stage of exchange control may be had from the following unusually frank statement of an influential London journal : " It should be noted that these exchange [control] arrangements are probably a greater encouragement to British exports than even any tariff concessions could be. It is remarkable, for instance, that Japanese textiles, which are robbing Lancashire of so many markets, are almost unknown in the Argentine; and there is no reason for it whatsoever except that the British exporter can get sterling while the Japanese cannot get yen." Financial News, Sept. 28, 1933. (Italics added.)

CHAPTER III THE TRANSITION TO FORMAL ANGLOARGENTINE BILATERALISM T H E extraordinary change in A r g e n t i n e commercial policy w h i c h found its formal embodiment in the

Roca-Runciman

treaty of M a y 1933, was the politically unavoidable outcome o f the world economic depression and of the fact that A r g e n tina found herself in a position f r o m which she could extricate herself by her own efforts only by overcoming what generally

believed to be insuperable political and

were

economic

obstacles. T h e first of these circumstances obviously requires no elaboration here as to its general aspects, except with respect to the manner in which A r g e n t i n a ' s market outlets were affected by developments g r o w i n g out of world depression. It is well k n o w n that a number of European countries as well as the U n i t e d States reacted to world depression by indulging in types of agrarian protectionism of

unprecedented

scope. I f already-high tariff barriers were not elevated even further, resort was had to the much more damaging instrument of quantitative control in the f o r m of quotas of various descriptions. O r the two were combined with sundry exchange restrictions further to complicate A r g e n t i n a ' s export prospects. H o w e v e r , if one makes but a brief inspection of the list of countries so obstructing the receipt of primary products, he will note t h a t — e x c e p t possibly f o r the United S t a t e s — n o t a single country in this category had important economic relations with the Argentine

in other than merchandise

trade.

I f the R i v e r Plate producer had been an important supplier of

cereals and other agricultural

products,

these

countries

would have had to reckon with import retaliation on the part of A r g e n t i n a . N o t that the latter would thereby have been able to avoid being the greater loser, consideration being given principally to the elasticity of demand f o r imports in terms o f her exports. B u t those imposing impediments to the importation of goods o f the sort m a k i n g up A r g e n t i n a ' s leading exports could at w o r s t have suffered only f r o m a great diminution in 69

7O

ARGENTINE

EXCHANGE

CONTROL

shipments of manufactured products and fuels to the South American republic. They were not at the same time important creditors—on public or private account. Therefore, they did not have to consider possible Argentine retaliation that might dwarf, in value terms, the obstacles which might be placed upon agricultural commodities. T o repeat, these considerations are in no way intended to detract from the palpably unenviable position of Argentina in the face of the post-1930 contraction or loss of remunerative European and American markets. They are merely set forth in an effort to approximate a position of appropriate perspective from which to view Argentina's drift into the situation mentioned in the opening paragraph of this chapter. A s was pointed out in the previous chapter, the D'Abernon commercial mission constituted the opening wedge in Britain's endeavors to obtain from Argentina special privileges in its growing market. Thoroughgoing Empire preference was already in the air, and with it the strategy of demanding positive advantages from the land of the pampa in " return " for the maintenance of the status quo as regards entry into the United Kingdom market. This technique was clearly expressed by a semi-official agency : 1 In its view the task of Lord D'Abernon 1 Cf. Monthly

Journal,

B r i t i s h C h a m b e r of C o m m e r c e in the

Argentine

Republic, A u g . 1939, p. 19. W e m a y a t this j u n c t u r e call the reader's attention to the role played in shaping A r g e n t i n e commercial policy by e x t r a - o f f i c i a l British agencies in the country. T h e

British Chamber

of C o m m e r c e ,

for

e x a m p l e , is really but an a d j u n c t of the E m b a s s y , a point v i r t u a l l y a d m i t t e d by A m b a s s a d o r M a c l e a y ( M o n t h l y Journal, disseminated

" analyses"

of

Sept. 1932, p. 2 3 ) . F r o m it a r e

British-Argentine

trade

and

suggestions

for

changes in trade policy. T h e s e a r e taken up by one o r m o r e of the rather w i d e l y read publications, p a r t i c u l a r l y by the influential weeklies : The of the River

Plate

and The

Times

of Argentina,

Review

w h i l e no small p a r t of the

publications of the latter furnish material g o i n g into the innumerable t r a d e building editorials of the t w o E n g l i s h dailies, the Buenos The Standard.

Aires

Herald

and

Representations in printed f o r m a r e rounded out b y occasional

inclusion in a f e w of the popular British-controlled S p a n i s h - l a n g u a g e m a g a zines and the tabloid, El Mundo.

L i t t l e use is made of radio representations,

a l t h o u g h t w o of the most popular B u e n o s A i r e s s t a t i o n s — e a c h of w h i c h plays a role in A r g e n t i n a r o u g h l y comparable to o u r national n e t w o r k s — a r e British controlled.

The

really

important

influence of the

Chamber's

" analyses ",

h o w e v e r , results f r o m their use in i n f o r m a l discussion and as topics of conv e r s a t i o n b y literally thousands of B r i t i s h subjects and A n g l o - A r g e n t i n e s w h o

ANGLO-ARGENTINE

BILATERALISM

71

w a s that of assuring the " provision by Argentina of special— one might almost say unique—facilities in respect of the admission of British merchandise in order to enfeeble the a r g u ments in f a v o u r of a revision of tariff arrangements as between the different units of the E m p i r e . " T h e special facilities in point relate to tariff

concessions by Argentina.

What

the

British were worried about at this time was not that their trade with the Argentine w a s declining in absolute terms, which would indeed have been a most unfavorable sign in this period of relative prosperity, but that " with the equality of opportunity in the guarantee of which Argentina has the fullest sense of having faithfully complied with all its commitments, the relative progress of British trade, considered in the light of the relative progress of the trade of other countries [notably the United S t a t e s ] , leaves much to be desired."

2

In their effort

to redress this unsatisfactory situation the emphasis was concentrated on the extraction of sizable tariff concessions—those of the order of 5 0 per cent being considered not unreasonable demands. 3 have close contacts with individuals in all walks of the government service. The writer had occasion to note how this conditions the thinking of Argentine officials in more than a few instances. Apart from the aforementioned modes of representation, however, one should not underestimate the significance of the almost regular attendance as invited guests of ranking government officials at the well-planned monthly luncheons of the Chamber. 2 Ibid., July 1929, p. 18. 3 Some idea of the type of argument used by the Chamber in its efforts of persuasion are indicated in the following lengthy quotation from the Monthly Journal, April 1932, p. 18: " H o w e v e r great England's requirement of substantial quantities of Argentine products . . . may be, this does not remove the fact that a moderate limitation of British imports from Argentina would in all probability have a very immoderate effect on Argentine prices and upon the economic situation of the country generally. The indications are that some sort of reciprocal concessions will have to be arranged between Argentina and Great Britain if British imports from this country are to continue at their present level. In British commercial circles in this country the belief exists that a 50 per cent rebate in import duties on goods of British origin would not be out of the question as a concession in exchange for continued and absolute freedom of access to the British market. Some decision regarding what Argentina is prepared to do would be very timely if it could be reached some time ahead of the Ottawa Conference. For the d a n g e r . . . is that England may be placed in the position of having to adopt economic

72

ARGENTINE

EXCHANGE

CONTROL

Not until the advent of official exchange rationing did British trade spokesmen discard the idea of tariff concessions for the sharper instrument, preferential exchange allocation. During the course of their applications for official exchange under the set-up which obtained at this time, British traders compared from day to day the sums which had been granted to them against the sums applied for. Discrepancies obtaining in the case of individual traders, however, proved little one way or the other. But why, they asked, should there be any discrepancy between the total of sterling exchange arising from British purchases in Argentina and the volume of exchange permits granted to Argentine importers, operating companies and individuals having to remit to London? That such discrepancies existed in significant proportions at this time must surely be conceded—a mere reference to the growing accumulation of blocked pesos is sufficient substantiation. It must equally be admitted, moreover, that demands for the two-way balancing of British-Argentine payments 4 would have met a cool reception had they not been part and parcel of the developments pending at Ottawa. Argentinians had long been imperialism as an absolute principle in which case the real commitment would be one of reducing purchases from Argentina to the lowest limit of rational and practical possibilities and with the intention of the gradual and progressive shifting over of trade from Argentina to the Dominions and Colonies, and all this regardless of the effect on British investments, British shipping or the manufacturing interests concerned in the buying power of the Argentine market. If some understanding could be reached before the conference, the English delegates could go to the conference fortified with the determination to take a stand of, first and foremost, fair trade for Great Britain, with every advantage to Britain which it is possible to secure from any country anywhere and in any legitimate and honourable way. F o r it cannot too often be pointed out that if economic imperialism is once definitely adopted as a principle or as a sacred racial doctrine, the idea of going to countries outside the Empire and offering them family privileges for equivalent favours will simply imply a breach of faith." W i t h respect to the tariff concessions sought, it must be remembered that a f t e r all preferences to Britain of great magnitude were not uncommon in the three-decker tariffs of some of the Dominions. 4 Many of those arguing the British case almost invariably cite the quite natural adversity of the trade balance—with only passing reference to the mass of invisibles—as indicative of a favorable Argentine balance of payments.

ANGLO-ARGENTINE

BILATERALISM

73

nurtured on views emphasizing the marked complementarity of the British and Argentine economies, yet it required something more than the mere recitation of such generalities convincingly to demonstrate that the fruits of this complementarity would be reduced in any substantial way by Argentina's refusal to accept the conditions implied in the bilateral balancing of accounts. The traditional privilege of buying in the cheapest market was one which they thought they could retain, Ottawa or n o t ; 5 nor did they believe Britain would be deprived of a reasonable share of the Argentine market if they insisted upon the continued exercise of this privilege. Like competitive sellers face to face with a single buyer, Argentina found it increasingly difficult to withstand the pressure of threats of gradual exclusion from its principal—and in the case of chilled beef almost its sole—market if it did not accede to British bilateralism.® This pre-Ottawa pressure, however, was as nothing when compared to that exerted after the conclusion of the Imperial Economic Conference. Quota restrictions, the very device which had already decimated exports to some of her old trading partners, were now adopted by Argentina's most important national customer. 7 And as if to forebode the worst of an uncertain set of consequences, these were applied to Argentina's political commodity par ex5 Articles and editorials to this effect are to be found in most Buenos Aires newspapers during 1932, especially in the well-informed La Prensa. Issues of the latter for Sept. 25, Oct. 27 and 29 are particularly explicit. 6 Note the remarks of President Gibson of the British Chamber of Commerce : " We are not greedy but we think we should have first preference to all the sterling exchange available before it is diverted to attend the services and purchases in other countries or flow into commercial channels which are not two-way British." (Italics added). Monthly Journal, May 1932, p. 31. 7 That the quotas gave Britain the whip hand in its dealings with Argentina was admitted by Ambassador Macleay, in whose opinion Britain " looks now as though it were in a better position than it has ever been before for obtaining a square deal." Ibid., Sept. 1932, p. 23. See, also, the view of Mr. Runciman, above, p. 50, n. 2. This same point is developed in G. May, Die Entwicklung des deutsch-britischen Handels seit der Pfundentwertung ab 21 September IÇ31 (Freiburg, 1937), p. S3·

74

ARGENTINE

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CONTROL

cellence: meat. T h e authorities could afford to lose no time in trying to do something about this deplorable turn of events. Ι . O T T A W A AND

AFTER

Ambassador Malbran, home for consultations with President Justo and Finance Minister Hueyo, quickly returned to London f o r the presentation of measures which the Argentine Government was prepared to adopt. H e was empowered to assure Britain that in future a definite preference would be given to English firms in all public works contracts, in addition to which Argentina would also give sympathetic consideration to the granting of commercial concessions of various sorts. F o r the moment this was about as far as Argentina appeared ready to go in pacifying the important livestock interests that were now intensifying their advocacy of Argentina's adoption of the policy of " buying from those who buy from us." Although the latter were now speaking more vociferously, there was by no means a unanimity of opinion in their ranks as to the extent of the preferences that were required to satisfy Britain's minimum demands. Moreover, there remained other important sectors of public opinion with which the government had to contend, especially those representing the cereal and miscellaneous export interests fearing reprisals in dozens of other markets as the price Argentina would have to pay for assurances of the maintenance of the position of Argentine meat in the British market. 8 Finally, the scattered liberal trade blocs, discouraged by what was in effect the resolving of Argentina's commercial relations with Great Britain through the latter's unilateral action at Ottawa, were outspoken in the press and on the platform against the government's readiness to abandon its traditional bases of commercial policy. W h a t was the nature of the Ottawa menace? Briefly, it consisted in the application of a schedule of restrictive quotas on the importation of non-Empire meat products into the United Kingdom. The statement of policy is clearly set forth in 8 La Prensa,

Dec. 29, 1932.

ANGLO-ARGENTINE

BILATERALISM

75

Schedule H of the agreement between the United K i n g d o m and the Commonwealth of Australia : " T h e policy of H i s Majesty's Government in the United K i n g d o m in relation to meat production is, first, to secure development of home production, and, secondly, to give to the Dominions an expanding share of imports into the United K i n g d o m . " It requires no sophisticated analysis to draw the simple and to Argentina ominous deductions : Rising costs 8 in the United Kingdom and a virtually unavoidable curtailment of consumption, plus the granting to the Dominions 10 of a greater fraction of reduced total imports simply meant that Argentina, as the leading and by all odds the lowest-cost foreign supplier, would have to accept a progressively smaller share of the British market. Specific percentage figures, beginning in January 1933 at 90 per cent of the quantity imported in the first quarter of 1932 and decreasing at the frightfully rapid rate of 5 per cent per quarter, revealed this in an appallingly clear manner in the case of frozen mutton and lamb and frozen beef. But in so far as the restrictions applied to these subsidiary meat products 1 1 the danger was still somewhat more apparent than real. The group holding the balance of political power wanted to know above all else how Ottawa affected Argentina's exports of highly-prized chilled beef. Significantly enough, in contrast to the other categories the treatment of chilled beef was a bit more reassuring. While mutton, lamb and frozen beef quotas for the April-June quarter of 1934 would have fallen to the low level of 65 per cent of the quantities received by Britain in the same quarter of 1932, the quota for the chilled type was 9 I. e., the extension of the margin under added protection against imports. 10 Now beginning some successful experimental shipments of chilled beef from as far as Australia. 11 These after all were the meat products in which Australia and New Zealand were primarily interested at Ottawa, although it must not be overlooked that insofar as chilled beef was competitive with them these two Dominions also had an interest in the institution of less favorable terms for the entry of the leading Argentine meat export.

76

ARGENTINE

EXCHANGE

CONTROL

originally set at the level of 1 0 0 per cent for each of the six quarters beginning in January 1933. In effect, therefore, Britain had assured Argentina of the maintenance of the status quo—on the low 1932 base, to be sure—as regards its one important meat export. It is in this context that one must regard Ambassador Malbran's departure for London in August 1932, the vague and indefinite proposals which he hoped would stem the tide of British restrictions on Argentine meat, and the important disputes that made for divided opinion at home with respect to the significance of the pressure from Ottawa. The promised 100 per cent quota on chilled beef, to be effective until mid-1934, seemed in particular to reassure those who argued that whatever Britain might threaten, she would not be able to dispense with economical Argentine chilled beef for many years to come. 12 But in what appears to have been a timely tactical move, Britain revealed that she was able to dispense in part with Argentina's principal meat export: On November 7 the chilled beef quota was reduced by 1 0 per cent.13 Chilled beef, like frozen beef, mutton and lamb, was to begin its quota at 90 per cent, or at a level 10 per cent below that confidently announced only several weeks before. Would it too have to submit to a reduction of up to 35 per cent within the space of a little more than a year ? 2. T H E

ROCA

MISSION

On this question the extraordinary plans of the Argentine government speak for themselves. The government was not going to rely on representations handled by its highest diplomatic officer in London. In deciding to send a specially selected commercial mission with very broad powers, headed by VicePresident Roca, the politically dominant estancieros must have felt that nothing short of a wholesale change in Argentine 12 La Nación and La Prensa, August and September, 1932. 13 Cf. Economic Revieiv,

July 1933, p. 51.

ANGLO-ARGENTINE

BILATERALISM

77

commercial policy, despite the problems which this would inevitably engender, would now permit the salvaging of the one trade on which alone they could depend for the maintenance of their relative economic position and the traditional social standing that was identified with the successful ownership of large cattle ranches. Not even the peones were misled by the official announcement that Sr. Roca was heading a diplomatic mission to return the visit of the Prince of Wales to the British Empire Trade Exposition, held in Buenos Aires in 1931. 1 4 The task of the Argentine delegation, entered upon shortly after initial diplomatic formalities had been concluded, was essentially that of endeavoring to work out some sort of scheme for the maintenance of the nearest thing to the status quo with respect to the entry of Argentine chilled beef into the British market. All other objectives of the Mission were unmistakably subordinated to this aim. Greater or less price concessions, subsidies of different sorts, and other means were at hand if need be to permit the disposition of the remaining agricultural exports, none of which depended upon any single national market. Nor, moreover, had the Ottawa arrangements threatened these items in any particularly fatal manner. As to the matter of unfreezing pesos blocked in Buenos Aires, we shall indicate in the analysis to follow why this aspect was but a byproduct of the other attainments of the Roca Mission—indeed, that it was really a necessary condition for the fullest realization of expectations stemming from the crucial exchange provision of Article 2 of the Anglo-Argentine Convention. Without entering upon anything in the nature of a prolix discussion of the details of negotiation, some samples of the forces with which the Argentine delegation had to contend may serve as a suitable introduction to the accomplishments of the Mission. As usual, the one really independent Argentine daily, La Prensa, took up the cudgels for the protection of the country's general as opposed to a few sectional interests. On the 14 Eder places the cost of the Exposition at ¿6,000,000. Cf. Eder, op. Ρ· 434·

cit.,

78

ARGENTINE

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CONTROL

very eve of the departure of the Roca delegation it devoted a lengthy editorial to the fallacious use, made in a distressingly explicit form by some British spokesmen at the farewell banquet the night before, of the trade balance, in the nature of the two economies regularly favorable to the Argentine, as indicative of a favorable balance of payments for Argentina vis-a-vis Great Britain.15 As obvious as the non-interchangeability of these two concepts happens to be, the more so since no study has ever been published showing the value of the broad and miscellaneous category of invisible imports from Britain, one finds use of this device time and again in trade journals and newspapers, speeches in Commons, and even by Embassy officials in the presence of Argentine ministers of finance. La Prensa frequently has contended that the most complete estimates of which its economic research division was capable indicated that in most recent years these invisibles did not fall materially short of equalling the size of the trade balance, while in some seasons Argentina's balance of payments might actually have been adverse.16 Although the resolution of this specific issue may never come to pass, owing to the withholding of important sections of information by both sides and to the veritable labyrinth of British investment holdings in the country, frequent appeals to unenlightened groups in terms of virtually unqualified one-sided trade-balance figures serve only to muddle the waters. The mere fact that such matters as these were taken seriously evinces the advanced stage to which bilateralistic thinking had already been carried. But this was an issue permitting of honorable debate, in regrettable contrast to some unfortunate views seriously entertained both by a member of the Argentine Embassy in London and by Englishmen of high political standing.17 An ex-Under15 La Prensa,

Jan. n , 1933.

16 Ibid. See especially the issues of Jan. 1, 11, and Feb. 26, 1933. 17 Ibid., Feb. 12, 1933, and The Times of Argentina, Feb. 13, 1933. A s an important British organ, the latter's comments on this incident may be of interest : " There are some Englishmen who simply cannot understand foreign

ANGLO-ARGENTINE

BILATERALISM

79

secretary f o r F o r e i g n A f f a i r s actually suggested that the most practical f o r m in which to resolve A n g l o - A r g e n t i n e commercial relations would be f o r Argentina to consider the voluntary renunciation of its full and sovereign independence so that it might incorporate itself

into the British Commonwealth

of

N a t i o n s ! 1 8 I t may be remarked, parenthetically, that such shortsighted imperialists pathetically underestimated the capacity of M r . Runciman to g o Ottawa even one better as f a r as carving enlarged trade outlets w a s concerned; for, to take a leading example, while in the case of Australia even very great tariff preference (e. g . )

to Lancashire textiles within the O t t a w a

f r a m e w o r k had to be supplemented by Australia's dangerously infuriating Japan by means of

her

1936

Trade

Diversion

policy, 1 9 Argentine exchange control produced the same results in an unobtrusive and speciously defensible manner. 20 A t the stage in the negotiations in which this verbal blunder w a s committed, the obstacle of the moment appeared to be the high tariff protection which obtained in Argentina.

Particularly

objec-

mentality or ambitions. Argentina is an independent, Spanish-speaking, progressive and proud country. It will dangle at the tail of no Empire or foreign country." 18 Significantly enough, La Prensa refused to print this dispatch in its news columns, and later commented editorially only after other newspapers had already broached the matter. 19 Australian Trade Diversion, instituted in May 1936, was an attempt on the one hand to enlarge the Australian market for British textiles by virtually embargoing the Japanese product, despite the fact that Australia's large positive trade balance with Japan enabled her to take care of about a third of her overseas debt service, and on the other hand to stimulate the undertaking of domestic production of motor chassis by embargoing such products of United States origin. Australia found it expedient to resume normal trading relations with Japan late in the same year, while the President's withdrawal of most-favored-nation treatment with respect to produce of Australian origin paved the way to Australia's rescinding its embargo on American motor chassis. For a brief treatment of this Australian episode, see N. F. Hall, " T r a d e Diversion: An Australian Interlude," Economica, Feb. 1938. 20 See above, p. 58 ff.

8o

ARGENTINE

EXCHANGE

CONTROL

tionable was the additional flat 10 per cent emergency tariff increase of 1931, 2 1 although La Prensa's reply to the objections raised was that however much it too regretted what it termed " excessive Argentine protectionism," the fact that so large a fraction of British exports to Argentina were in the duty-free category—54 per cent by value in 1932 as compared with but 12 per cent for second-ranking Germany 22—meant that Britain was in reality in the least unfavorable position in this regard. On the other hand, since Argentine national revenues were still about as heavily dependent upon customs receipts as in our own pre-war days, the negotiators in London were particularly reluctant to consider any immediate reduction in duties.23 Considerable discussion also centered about the terms on which Argentina would consent to the liquidation of the large mass of British blocked peso claims. Detailed points taken up in this phase of the negotiations have not been made public, but it seems reasonable to assume that such matters as the rate of exchange at which pesos would be converted into sterling as well as the type of funding loan that would be employed occupied the center of attention. When La Prensa was informed by its London correspondent that British spokesmen had intimated that the manner in which Argentina would treat British blocked claims would " color " all other aspects of the Roca negotiations, the newspaper asserted editorially that this revealed " a greater interest in its Argentine dividends than in its exports to this country," in contradiction to customary British complaints regarding inadequate trade reciprocity on 21 Phelps points out that this was in reality a 36 per cent increase, the average duty paid on dutiable merchandise in 1930 having been 28 per cent. H e seems to have reference to " unweighted " averages here, although anything less than properly weighted figures would be very rough at best. Cf. D. M. Phelps, Migration of Industry to South America (1936), p. 39. 22 La Prensa, Feb. 26, 1933. 23 Given the overwhelming importance of exchange control in the Argentine import trade of this period, considerations of the demand elasticity for imports in relation to some optimum revenue-yield tariff level would have been largely academic.

ANGLO-ARGENTINE

BILATERALISM

8l

the part of Argentina. This view, however, does not appear to be tenable in the light of developments later disclosed to have been taking form at this time. For it is reasonably certain that the bilateralistic shape Argentine exchange control would assume once the mass of blocked balances had been liquidated had reached a fairly advanced stage of formulation, so that both visibles and invisibles making up the British end of AngloArgentine commercial relations were resolved to the general satisfaction of the two parties. Thus it may be asserted that the discussion relating to the unblocking of British frozen balances in Argentina formed but a detail in the discussion centered about the heart of the Roca pact—the decisive exchange allocation provisions of Article 2. Once the matter of exchange allocation had come to the forefront in the negotiations, it was only to be expected that the Argentine delegation would inquire about the manner of arriving at the figure of sterling exchange available for allocation. Specifically, it wished to ascertain how the Board of Trade reached certain figures concerning the value of Argentine exports to the United Kingdom. The question in particular of the great frigoríficos (meat packing plants) allegedly using their " monopoly " position to good advantage when buying cattle at Argentine escancias was an old one, for it had formed the topic of investigation by many government commissions ever since River Plate cattle interests became alarmed by the entrance of the American meat " trust " in the first decade of the century. 24 In reply to queries concerning prices recently paid by the frigoríficos for chiller type cattle in Argentina, the British authorities divulged the following figures : an average of 24 centavos per kilo live weight for the week November 2 to 9, 1932 and 25 centavos for the period November 16 to 28. These figures shocked the Argentine Minister of Agriculture, who produced data showing that prices received averaged only 18 centavos for the week ended November 9 and 18 24 Cf. S. G. Hanson, op. cit., pp. 144-185.

82

ARGENTINE

EXCHANGE

CONTROL

centavos again for the weeks ended November 19 and December 3. Discrepancies such as these, of the magnitude of 20 to 25 per cent, were naturally disquieting; for apart from the manner in which a possibly obstinate adherence to Board of Trade figures might adversely affect the allocation of exchange, 25 the Argentine delegation had also to consider the bearing of these announced discrepancies upon the general relations between the government and the frigoríficos—a bearing now fraught with significance in the light of Britain's assumption of control over meat quotas under the Ottawa agreements. La Prensa's remarks in this regard, expressed at the height of temporary controversy over this aspect of the negotiations, appear to be representative of the industry: It asserted British interests favored the official publication of high buying prices " so that in a possible joint Anglo-Argentine investigation of the profits of the meat packers, Great Britain could be of assistance by denying participation in the quotas to uncooperative firms." 20 It is hardly surprising in view of the problems of which the above are samples that the progress of the Roca negotiations had its setbacks, however great the desire of the estancieros to offer concessions in an effort to preserve their position in the British meat trade. Although most of these matters are shrouded in official secrecy, the stalemate of late March may well have arisen in connection with Argentina's sudden concern with threats of the widespread blocking of Argentine balances in reprisal either for fears regarding Sr. Roca's disposition to accord specially favorable treatment to British frozen peso 25 Argentine concern at this time over the manner in which British overstatement of the prices of Argentine exports might restrict the allocation of exchange to non-sterling remitters parallels in every detail later United States concern over the manner in which Argentine understatement of American purchases in that country arbitrarily reduced the amount of dollar exchange properly allocable under exchange control policy to those having to remit to the United States. 26 March n , 1933.

ANGLO-ARGENTINE

assets

27

BILATERALISM

83

or f o r the existence of peso blocking itself. T h e H i s -

p a n o - A r g e n t i n e e x c h a n g e crisis which w a s then reaching its c l i m a x is illustrative o f the latter. It is k n o w n that A r g e n t i n a ' s action in blocking the claims of m a n y f o r e i g n exporters had been challenged b y the Spanish government, despite the fact that

Spain

regularly

balances w i t h

the

e n j o y e d positive

South

American

trade and

republic.

payments

The

Spanish

B o a r d of M o n e t a r y Control, opposed to the policy of e x c h a n g e control countries in blocking Spanish balances, proceeded in reprisal to single o u t and block the peseta balances of the v e r y countries, including A r g e n t i n a , which had frozen sums Spaniards. 2 8

due

P e r h a p s A r g e n t i n a ' s concern over the possible

spreading of such retaliatory action may have been the principal factor responsible

f o r the temporary cessation o f

the

L o n d o n negotiations ; f o r the South A m e r i c a n republic had made an effort to patch up its differences with Spain, an agreement to exchange corn f o r Spanish steel rails to the value o f 2 0 million pesetas h a v i n g been looked upon as a prelude to the reciprocal treatment of the transfer of blocked claims. A p a r t f r o m what w a s in all likelihood L o n d o n ' s attempt to minimize the fears expressed on the score of Spanish retaliation, there is small doubt that the projected purchase of Spanish rails w a s most

unpopular in Great

Britain.

Had

not this

important

product always been one o f Britain's principal steel exports to A r g e n t i n a , whose railroad networks were largely of

British

construction? Such queries m a y well have led to a stiffening of

the A r g e n t i n e attitude and the g r a n t i n g of

further and

decisive concessions to Britain. A t any rate A r g e n t i n a celled

the corn-rail

agreement,

intensified

can-

the blocking

of

Spanish balances by preventing even immigrant remittances, 27 The

French government

w a s s o a r o u s e d o v e r this p o s s i b i l i t y t h a t

t h r e a t e n e d to f r e e z e A r g e n t i n e a s s e t s in F r a n c e . Cr. The

Times

of

it

Argentina,

M a r c h 27, 1933, p. 33. 2 8 Cf. J. Sarda, La Intervención España

( B a r c e l o n a , 1936), p. 160.

Monetaria

y el Comercio

de Devisas

en

84

ARGENTINE

EXCHANGE

CONTROL

and resumed active negotiations in London. 2 9 In less than a fortnight—on M a y i , 1 9 3 3 — i t had announced the successful conclusion of a far-reaching commercial and financial accord with Great Britain, the Anglo-Argentine Convention, since generally known as the Roca-Runciman Treaty. 3. T H E ROCA-RUNCIMAN

TREATY

If there is need of further evidence of the central importance attached to Argentine meat in the London negotiations, it may be added that no other commodity was even referred to in the text of the Anglo-Argentine Convention itself, the treaty f r o m which derives the drastically new orientation of Argentine commercial policy. 30 Article 1 of this Convention guaranteed Argentine chilled beef, " the importance of which in the economic life of Argentina is fully recognized by Great Britain," against restrictions reducing quarterly imports into the United Kingdom below 90 per cent of the imports effected in the corresponding quarter of the year ended June 30, 1 9 3 2 . Whenever it was felt necessary to reduce the quota below this 9 0 per cent level, Great Britain would consult with Argentina and the governments of the other leading suppliers of the United Kingdom market with the aim of distributing import reductions among the several overseas suppliers. Article 1 is thus nothing more than a modified f o r m of Schedule H of the agreement reached at Ottawa between Britain and the Commonwealth of Australia. T h e heart of the Roca pact, Section 1 , Article 2, merits quotation in f u l l : 29 La Nación, April 19, 1933. The United States' departure from gold in the midst of the Roca negotiations undoubtedly constituted another factor hastening action for the conclusion of an agreement, for reductions in the dollar rate of exchange that appeared likely would cut into the favorable differential which British exporters enjoyed since September 1931. Cf. Board 0} Trade Journal, July 20, 1933, p. 96. 30 W e are following the text of the pact in Tratados de Comercio de Ια República Argentina, Instituto de Economía Política (Buenos Aires, 1939).

ANGLO-ARGENTINE

BILATERALISM

85

Whenever any system of exchange control is in operation in Argentina, the conditions under which foreign currency shall be made available in any year shall be such as to secure that there shall be available, for the purpose of meeting applications for current remittances from Argentina to the United Kingdom, the full amount of the sterling exchange arising from the sale of Argentine products in the United Kingdom after the deduction of a reasonable sum annually towards the payment of the service of the Argentine public external debts (national, provincial and municipal) payable in countries other than the United Kingdom. 3 1 T h e remaining sections of Article 2 either round out Section ι or relate specifically to the liquidation of blocked British balances, the disposal of which was essential to the maximization of the effectiveness of Section ι itself. Section 2 provided f o r the joint Anglo-Argentine determination of the order in which sterling exchange, save f o r that part set aside to take care of the foreign debt service, was to be allocated to remitters to the United Kingdom. The disposition of the blocked claims came under Sections 3 and 4. It was agreed that the sterling equivalent of 12,000,000 pesos f r o m exports to Britain in 1 9 3 3 was to be reserved f o r the cash liquidation of claims awaiting payment on M a y 1 , 1 9 3 3 , again a f t e r detailed provisions were agreed upon by the two countries. T h e remaining blocked peso balances, well over 90 per cent of the total, were to be funded into 20-year, 4 per cent sterling bonds of the 31 The Economist, Argentine Supplement, Feb. 8, 1936, p. 1. Section ι of Article 2 is usually referred to as the heart of the A n g l o Argentine payments agreement. Cf., e. g., Tasca, H . J., World Trading Systems: A Study of American and British Commercial Policies ( P a r i s , I939)i PP· 79 ff· T o the present writer, however, the word " p a y m e n t s " appears to be a bit euphemistic, to say the least, in view of the trade-diverting character of this provision of the R o c a pact. T h e term " tying agreement as seems to be suggested by Professor Robbins (" The E x p o r t Problem," Lloyds Bank Review, July 1939, p. 2 2 4 ) , is far more appropriate, since the quasi-clearing nature of the provision is brought out more clearly by the use of the latter terminology. For another related reference to the ambiguity of the words " payment agreement ", cf. H . S. Ellis, " E x c h a n g e Control in Germany," Quarterly Journal of Economics, Part II, A u g . 1940, p. 178.

86

ARGENTINE

EXCHANGE

CONTROL

Argentine Government, the rates of conversion and other conditions being subject to separate agreement between the authorities in Buenos A i r e s and representatives of the creditors. 35 Section 5 accorded most-favored-nation treatment in the allocation of exchange f o r remittances to Britain, while the concluding section pledged Britain to cooperate to the fullest extent with the Argentine government in order that the figure for the total of sterling exchange created by Argentine exports to the United Kingdom would correspond as near as possible to the United Kingdom value of these exports, due account being had f o r such necessary deductions as freight, insurance, and the like. T h e significant divisions of the R o c a pact terminate with Article 3, which called f o r the conclusion at the earliest possible date of a supplementary convention dealing principally with a definitive statement of Argentine tariff concessions tentatively pledged while the R o c a Mission was in London. Failing the realization of this supplementary agreement by A u g u s t I, 1 9 3 3 , either contracting party would be free to terminate the pact. Turning to the Protocol to the Roca-Runciman Treaty, we find that miscellaneous aspects and troublesome features of Anglo-Argentine commercial relations were subjected to several clarifying declarations. F o r its part Argentina pledged ( 1 ) the most sympathetic treatment consistent with constitutional action of British capital invested in the Argentine; ( 2 ) its intention ( a ) to maintain coal and all other non-dutiable imports 32 T h e principal funding operation was completed in October, through the issuance of sterling 20-year bonds in the amount of ¿13,526,335 to be a m o r tized at an annual rate of 5 per cent beginning in 1939. 43d was accepted as the conversion rate for pesos. Accounts still blocked in January 1, 1934 were funded in a supplementary sterling loan on the same terms in the amount of £1,293,600. Cf. La Obra Financiera del Poder Ejecutivo Nacional de 1932 a 1937, op. cit., and H . G. White, Jr., " Blocked Commercial Balances in American Foreign Policy," American Economic Review, March 1939, pp. 77-80. F o r the manner in which it was possible for the British creditors to realize 20 per cent of their claims in cash and the balance over an 18-year period in an ingenious trust arrangement, see The Economist, Oct. 28, 1933, p. 819.

ANGLO-ARGENTINE

BILATERALISM

87

on a duty-free basis; (b) in the case of those imports a large proportion of which originates in the United Kingdom, to return to the general tariff structure ruling in 1930, providing such action was consistent with fiscal necessities and the interests of Argentina's secondary industries; " and (c) to enter into conversations with Great Britain with the object of considering measures for the maintenance of the present position of United Kingdom coal in the Argentine market; ( 3 ) that it will designate a Special Committee, a member of which will be a representative of the British Government, which will prepare a supplementary agreement according to the terms of Article 3 of the Roca pact; and (4) with respect to the commodities mentioned under ( 2 ) , not to increase the number of dutiable items nor to increase duties on existing dutiable categories pending the conclusion of the supplementary convention. On the other hand, the British Government pledged ( 1 ) its disposition to cooperate with the Argentine Government in a joint investigation of the economic and financial structure as well as the operation of the Argentine meat industry, with special reference to measures necessary to assure reasonable earnings to the cattle breeders; ( 2 ) that in the event the Argentine Government assumed the ownership, control or administration of packing plants not operated for private profit but established simply for the purpose of assuring a reasonable profit to the breeders, Great Britain was disposed to permit authorized importers to import meat originating in such plants up to 15 per cent of total Argentine imports, it being understood that such shipments were to be handled efficiently through normal channels; 3 4 ( 3 ) the periodical communication to the 33 In the Supplementary Agreement of Sept. 26, 1933, Argentina's willingness to abolish the emergency 10 per cent tariff surcharge of 1931 is predicated upon a marked improvement in Argentina's fiscal position, but no reference is made to the interests of its secondary industries. See Tratados de Comercio de la República Argentina, pp. 31-32. 34 This proviso was of course designed to protect the interests of British refrigerated cargo liners.

88

ARGENTINE

EXCHANGE

CONTROL

Argentine Government of details concerning the issuance of authorized permits for the entry of Argentine meat into the United Kingdom; (4) that it was not its intention ( a ) to impose new or increase existing duties on meat, bacon, hams, wheat, linseed, corn, and quebracho extract imported from Argentina; (b) to establish quantitative restrictions on the importation into the United Kingdom of wheat, linseed, corn, bran, greasy wool, unrefined tallow, animal hair, premier jus, tripe, and quebracho extract ; but in the event quantitative restrictions were imposed on items not just specified, it would (c) give equitable treatment to such items of Argentine origin; and ( 4 ) that Great Britain would not impose new duties on the commodities specified under ( a ) in pledge ( 3 ) nor establish quantitative restrictions on items listed in (b) pending the conclusion of the supplementary agreement. W e need not linger long with the Supplementary Convention, finally signed on September 26, 1933. A s an integral part of the Roca-Runciman pact, it consisted almost exclusively of the downward revision of Argentine customs duties on a long list of manufactured goods and fuels of which the United Kingdom was the chief supplier. Thus Great Britain in effect received tariff preferences bordering in value on those granted by some of the Dominions, for she had to worry about few inroads on the commodity classifications for which tariff reductions were obtained. This favorable situation derived from the fact that at this time no important industrial countries received unconditional most-favored-nation treatment from the Argentine, to say nothing about the virtual worthlessness of duty reductions to exporters in countries discriminated against in the crucial matter of exchange allocation. 4 . S O M E O B S E R V A T I O N S ON A R T I C L E 2 OF T H E R O C A T R E A T Y

Although an appraisal of the central aspect of the Roca treaty, in the absence of a narration and critical analysis of the developments which to this day have stemmed therefrom, can hardly do justice to the issues involved in this policy-changing

ANGLO-ARGENTINE

BILATERALISM

89

decision, there are several matters about which something should be said before taking up an analysis of what has been called the second stage of Argentine exchange control. In the first place, it cannot be emphasized too strongly that the critical Ottawa restrictions on the politically supersensitive commodity, meat, were in no wise offset after more than three months of detailed negotiations by a special commercial mission; to be sure, a disquieting status quo was preferable to even more restrictive quotas. But could not more far-sighted leadership have avoided the granting of thoroughgoing preferences of the sort that were actually conceded under the terms of the Roca pact, concessions which, besides encouraging international illwill in the case of those countries discriminated against, reduced Argentina to something close to an economic vassal of a power that had never preached nor practiced universal narrow bilateralism as a new and more satisfactory type of international economic policy ? There is no question, of course, that it was politically inexpedient for the government to sit back and take the risk that Ottawa would not shortly become a superOttawa; yet while it is unquestionable that the government could not have looked with indifference upon any substantial decline in its meat shipments to the United Kingdom, it was hardly less questionable that for Argentina the only field for counter attack lay in the discriminatory treatment of British investment holdings. This sort of thing was never given serious attention, however, although it may be inferred from certain developments 85 as well as from the political views of some sections of Argentine opinion that sotto voce consideration of even this possibility must at one time have prevailed. Nevertheless, no amount of such discrimination, however contrived, could possibly have lessened the impact on Argentine estancieros of thoroughgoing British retaliation by way of sizable quota restrictions and/or duties on chilled beef. Even from a broad 35 An example of which was the proposed 30 per cent surtax on the income of absentee proprietors, including concerns having their directorates abroad. See Monthly Journal, April 1932, p. 21.

90

ARGENTINE

EXCHANGE

CONTROL

balance of payments angle, the procedure might have gone on the rocks of a possible British blocking of the sterling proceeds of (diminished) Argentine exports. Besides, the very idea of an escape mechanism of this complexion was foreign to the morality of most responsible Argentine authorities. The Ottawa menace, therefore, could not be removed by means of Argentine reprisals. Turning to the other extreme, why then did the Buenos Aires authorities grant their " best customer " the almost unprecedented combination of assurances of differentially favoring its capital investments, marked tariff preferences, and what was in effect a quasi-clearing 38 agreement, in return for purely negative commercial commitments? It is doubtful if even the estanciero most thoroughly frightened by Ottawa could have foreseen Argentina's submission to terms such as these. Specifically, why was the quasi-clearing provision of Section ι of Article 2 thrown in with the other two Argentine concessions ? A s the present writer sees it, the few bits of material with which we have to work, in default of detailed officiai disclosures, indicate that a new variable entered the picture after the Roca negotiations had already got under way. The dynamic Sr. Federico Pinedo and a few of the economic advisors of the Ministry of Finance had by this time contrived along general lines an exchange control scheme which on its purely exchange side would eliminate the possibility of blocking exchange and at the same time provide the Treasury with an added source 36 Had Section 1 of Article 2 made no allowance for the servicing of Argentine non-sterling foreign obligations, the crucial part of the Roca pact would not have differed in substance, even though it would have been somewhat unique in form, from the clearing agreements fostered especially by the totalitarian countries. Since such allowance was actually made and since it is known that a large fraction of Argentine non-sterling bonds are in fact held by British investors, the net deduction from two-way British employment of the sterling proceeds of Argentine exports may be extremely small. Hence the term quasi-clearing agreement.

ANGLO-ARGENTINE

BILATERALISM

9I

37

of revenue. The blocking of pesos would vanish through the legalization of the bolsa negra by the establishment of a de jure free market, appropriately supplied by approved sources of foreign exchange. But before there could be any hope for the successful establishment of an uncontrolled foreign exchange market alongside of a new controlled structure, the mass of pesos currently awaiting liquidation into foreign currencies had to be removed from the picture. It seems that in his enthusiasm for this new exchange control scheme, Pinedo (and the group of which he appeared to be the philosophic father) regarded the funding of blocked peso balances as a matter of the first importance to Argentina.'8 In addition, mention should be made of the readiness with which any finance minister in a period such as that which now obtained would have welcomed the opportunity that would have enabled him, in turn, to fund a disturbingly large floating debt. The latter, troublesome as it was, might be tolerated for some time; still the new exchange control scheme, however great its superiority as an instrument of control might be, would be suffocated at birth in the presence of any really great mass of exchange claims awaiting remittance abroad. But how could Argentina expect to obtain a large funding loan in the London money market, access to which was now virtually barred to all save the Dominions,3® especially in view of a debtor record the high standing of which was lately being constantly brought into question as a multitude of inflation schemes came perilously close to having been stamped with official acceptance? The overwhelming importance of obtaining a London funding loan at an early date thus appears to have been the determining factor accounting for Argentina's granting Britain first call upon the sterling proceeds of River Plate exports ; in other words, the quasi-clearing provisions of 37 Cf. " La Restauration Financière de l'Argentine," Rei'ue Économique et Parlementaire, March 1938, pp. 456-460, for an interesting discussion of Pinedo's rise to the post of Minister of Finance. 38 A s distinct from the patent desires of overseas creditors. 39 Cf. The Economist,

April 28, 1934, p. 933.

92

ARGENTINE

EXCHANGE

CONTROL

Article 2 may be looked upon as the high price paid for the early establishment of a novel and lucrative exchange control system.'40 On the other hand, as f a r as the British side is concerned, it must be borne in mind that the funding of Argentine blocked balances, within the framework of the Roca pact, was valued far more for the added attractions that Section 1 of Article 2 provided for stimulating the export trade than for the immediate relief afforded British creditors. For had the blocked balances been set free in piecemeal fashion, for instance a given fraction being liquidated annually out of the sterling proceeds of Argentine exports, 41 so much less exchange would have been available under Section 1 for allocation to the importers of products of many of Britain's so-called depressed industries. The funding of these balances, however, left Britain free to concentrate its energies on the matter of providing English exporters with the maximum possible share of the Argentine import trade. To be sure, it may also have been contemplated at this time that any success which Britain might have in persuading Argentina to avail herself of all opportunities to redeem non-sterling foreign obligations would mean that a so much greater proportion of Argentina's sterling exchange would " flow in commercial channels which were twoway British." But we shall have more to say later concerning the diversity of discriminatory possibilities under the Roca accord. A third and concluding observation at this juncture relates to the reaction of several of Argentina's continental trading 40 It is noteworthy that after an entire day's debate in Commons devoted to the Argentine and Danish agreements, no more than a single vague reference was made to crucial Article 2 of the Roca pact. This does not mean, of course, that the Board of Trade failed to appreciate the central importance of this provision. It seems that the novelty of the technical e x c h a n g e allocation feature ( w h i c h moreover w a s absent from the Danish accord) made it appear more as an abstract than a powerful practical weapon. See Parliamentary Debates, Commons, Vol. 277, M a y 10, 1933, columns 1538-1664. T h e reference mentioned is in col. 1662. 41 A s was the case in one of the earliest clearing agreements, that between Austria and Switzerland. Cf. H . S. Ellis, " E x c h a n g e Control in Austria and Hungary," Quarterly Journal of Economics, Part II, November 1939, p. 45.

ANGLO-ARGENTINE

BILATERALISM

93

partners to the threat to their trade position presented by Article 2 of the Roca pact. A s might be expected, countries regularly having unfavorable trade and payments balances with the South American republic were the first to regard the salient feature of the Anglo-Argentine Convention as a model upon the basis of which they might seek to prevent encroachments on their own finished-goods trade. Even though they lacked anything approaching the decisive bargaining point which Britain used to such good advantage, 42 the fact that they were substantial importers, in particular of cereals and animal feedstuffs, meant that the Argentine authorities hardly could have avoided being disposed to grant favorable treatment in the matter of their trade. This treatment, however, only superficially involved concessions of the sort embodied in Article 2 of the accord with Great Britain; as a matter of fact, Argentina was unwilling to grant anything more than most-favorednation treatment in the matter of allocating official exchange." Thus in the relevant section of Article 1 of the exchange agreement of January 16, 1934 with the Belgian-Luxembourg Economic Union, we find that Argentine importers of goods of Belgian or Luxembourg origin " will be assured of obtaining and having the power to transfer to foreign creditors, without any restrictions whatever, foreign exchange or the equivalent in belgas of the sums stipulated in the contracts covering such goods." 4 4 Article 2 extends the same general treatment to 42 The President of the Board of Trade put the matter rather succinctly in the following terms : " If we had not been far and away the largest purchasers of Argentine meat, it would not have been possible to have made this agreement at all." Parliamentary Debates, Commons, Vol. 277, May 10, 1933, col. 1574. 43 Thus a Belgian writer points out that the Belgo-Argentine accord should not be construed as a payments agreement. Cf. Ο. H. Bourdeaud'huy, Accords de Compensation et Conventions de Paiement (Antwerp, 1938), p. 139. 44 Tratados de Comercio de la República Argentina, p. 245. Professor

Condliffe holds that sterling-bloc countries had peculiar success in negotiating commercial agreements with Argentina at this time. Currency areas actually had little to do with the matter. And the evidence runs directly contrary to

94

ARGENTINE

EXCHANGE

CONTROL

Belgian nontrade claims. Similar accords were concluded with the Netherlands M a y 18,

on J a n u a r y

3 1 , and with

Switzerland

on

1934. 4 5

F o r e m o s t a m o n g the commercial treaties negotiated after the R o c a pact, h o w e v e r , w a s the so-called " commercial and payments " agreement w i t h G e r m a n y , signed September 28, I934." e A s f a r as the t e x t of the agreement is concerned, it would appear that the salient exchange-rate features were substantially identical w i t h those set f o r t h in the commercial accord w i t h Belgium.·" T h u s A r t i c l e s 1 and 2 call f o r the reciprocal granting of most-favored-nation

exchange-rate

treatment.

In its

other accords A r g e n t i n a · h a s inserted a provision permitting a " reasonable " annual deduction f r o m the exchange proceeds o f exports to the country in question, the sums thus deducted being used f o r the servicing of A r g e n t i n e foreign debts outside of that country. In the G e r m a n agreement, however, the provision relating to the deduction is not qualified by reference to third countries. N o r , f o r that matter, is anything said in the t e x t of the accord about the important practical question of the species o f reichsmarks w i t h which A r g e n t i n e would be credited b y the Reichsbank.'"' A s a matter of fact, this accord w a s nothing less than a clearing agreement. A l t h o u g h the details of operation

have

the a s s e r t i o n m e n t i o n e d , f o r t h r e e of the f o u r a g r e e m e n t s r e a c h e d up to m i d 1934 w e r e w i t h c o n t i n e n t a l g o l d - b l o c c o u n t r i e s . Cf. J . B . C o n d l i f f e , The construction 4 5 Tratados

of World

de Comercio

de la República

Argentina,

4 6 F o r the t e x t of this a g r e e m e n t , see Revista M a y 1937, pp. 404-05, a n d Tratados pp.

Re-

(1940), p. 320.

Trade

de Comercio

pp. 253-54, 259-60.

de Ciencias

Económicas,

de la República

Argentina,

149-51·

4 7 O n e w r i t e r s t a t e s t h a t this a c c o r d w i t h G e r m a n y w a s the s a m e in p r i n ciple a s t h e R o c a a g r e e m e n t . Cf.

S. W . Aisenstein, " E l M e r c a d o

Argentino

en R e l a c i ó n a l o s P r o d u c t o s d e E x p o r t a c i ó n A l e m a n a d u r a n t e el 1929-1935," Revista 4 8 Cf.

B a d e r , Die

de Ciencias

Económicas,

argentinische

Κ . S c h n e i d e r , Der Welthandel

Periodo

M a y 1937, p. 403.

Devisenbewirtschaftung,

im Clearingverkehr

pp.

145-46, a n d

( B e r l i n , 1938), pp. 110-111.

ANGLO-ARGENTINE

BILATERALISM

95

never been made public,·" it is known that Argentine importers of German merchandise go through the formality of obtaining prior permits while actually making payment in pesos to the account of the Reichsbank with the Argentine Central Bank. Moreover, one learns in informed circles in Buenos Aires that Argentina has never realized free exchange in accordance with the " deduction " provision in the text of the 1 9 3 4 agreement. The problem has really been that of preventing the growth of mark balances, in part by diverting to Germany, in the case of categories of goods in which German firms could be expected to make deliveries without undue delay, of as much as possible of Argentina's unbilateralized imports. A t any rate, while the original agreement was probably not meant to be of the clearing variety, Germany's indebtedness to Argentina on current account (as a result of unfavorable trade balances) enabled the authorities in Berlin to convert the 1934 accord into a de facto clearing. 49 Thus one German writer, in describing recent trade relations with Argentina, does not even mention the German-Argentine clearing. Cf. Ο. E. Paul, Südamerika, Rohstoßkammer und Absatzkontinent (Berlin, 1 9 3 7 ) , pp. 61-80.

CHAPTER IV THE

EXCHANGE REGIME

AND

TRADE

OF NOVEMBER

CONTROL 1933

FOLLOWING the conclusion of the Roca funding loan and the virtual completion of arrangements for the funding of dollar blockages, the Argentine government felt free to introduce changes in the exchange control system intended ( i ) to rectify the principal difficulties associated both with exchange rate policy since late 1931 and the absence of control over the process of importation, ( 2 ) to provide a source of revenue from which certain agricultural producers could be subsidized and foreign debt-service losses offset, and ( 3 ) to assist in the discharge of its obligations under Article 2 of the Roca-Runciman pact. Proceeding by degrees, as if to stress the improvised and possibly temporary character of changes which were certain to elicit strong disapproval from many quarters, the Argentine government issued on November 10, 1933 the first of the decrees that were to constitute the legal basis of the second stage of exchange control. This measure stipulated that after January I, 1934 imported merchandise could be paid for at the official rate of exchange only in the event that permits for the required amount of exchange had been obtained from the Commission at the time orders were placed abroad. Such importers were thus assured official exchange as soon as the goods had been cleared through the customs. T h e principal criterion for the granting of these permits, designated " prior exchange permits " as distinct from the former exchange permit pure and simple, was frankly bilateralistic. They would be granted to applicants subject to sufficient exchange being available f o r the country of origin of the goods. Since no change concerning the exchange rate was announced at this time, applicants failing to obtain the requisite prior permit had to assume the risk of covering their commitments by way of the more costly unofficial or black market. But as contrasted with 96

CONTROL

REGIME

OF

I933

97

the situation prevailing up to November 10, the importer was now at least somewhat better informed. Before contracting abroad he knew, if he failed to obtain a prior exchange permit, that the landed cost of the merchandise would be c.i.f. plus the difference between the rates in the official and unofficial markets. The higher exchange rates in such cases were bound to discourage importation in many instances, the more so since they came at a time when a reduction in the unofficial market value of the currency appeared imminent as more and more agricultural groups clamored for greater government assistance, principally in the form of a more depreciated peso. 1 Finance Minister Pinedo, 2 professing to have as his aim the dual purpose of assisting Argentine cereal producers and of mitigating the burden of the government's foreign debt service, was responsible for the introduction of a series of farreaching decrees on November 28, 1 9 3 3 . First, the government's official buying rate—the price at which bills arising out of " regular " exports s had to be surrendered to the authorities —was raised to a point approximately 20 per cent above that ruling under the superseded rigid rate structure of the E x change Control Commission. This act was widely interpreted 1 Cf. The Times of Argentina, Oct. 16 and Nov. 13, 1933. 2 Sr. Pinedo succeeded Dr. Alberto Hueyo in the Justo cabinet in July of 1933· 3 " Regular " exports consisted of those moving in foreign trade year in and year out, the volume of which, generally speaking, appeared to the authorities to be insensitive to increases by means of special exchange-rate subsidies. In no case have the authorities been as specific as this, but the definition conforms to exchange control experience. " Regular " and subsidized exports were not necessarily mutually exclusive categories. Several popular sources of information have given currency to misconceptions on this score. Thus the League's World Economic Survey, IÇ35-36, p. 211, states in effect that the only export bills which had to be sold to authorized banks at the official buying rate were meat and wheat. Actually these two items constituted well under half of the exports (by value) subject to this mandatory provision of Argentine exchange control.

98

ARGENTINE

EXCHANGE

CONTROL

as being equivalent to a 20 per cent depreciation of the peso. 4 Actually, however, an index of the depreciation involved must be in terms of a comparison of the official selling rates before and after November 28, since the percentage increase in the effective official selling rate under the November 28 control scheme over that ruling theretofore can be the only proper indication of the extent of the latest depreciation of the currency. In other words, since the meaning of monetary depreciation is that " money buys less," the exchange rate at which foreign purchases are effected (the selling rate) must be used in arriving at the percentage magnitude of peso depreciation. 8 W i t h the average (French) franc selling rate for November at 15.59 a n d that for December at 19.64,® we thus see that the true depreciation was of the order of 26 per cent, or approximately 30 per cent in excess of the official figure. Moreover, if instead of using two average monthly rates we employ the more significant average annual franc rates for 1933 and 1934, we find that the depreciation resulting from the November 28 decrees works out to be over twice as great as that official announced, namely, 43.3 per cent.7 Secondly, holders of prior 4 Thus Pinedo, El Plan de Acción Económica ante el Congreso p. 3 8 ; Bader, op. cit., p. 118; and Department of Overseas Trade,

on the Economic, Commercial and Financial Conditions in Republic," 193s, p. 3. Each of these sources stated, uniformly ence to the selling rate, that the depreciation was of the order A more recent writer erroneously places the 1933 depreciation Cf. F. A. Southard, Foreign Exchange

Practice and Policy

Nacional, "Report

the Argentine without referof 20 per cent. at 10 per cent.

( 1 9 4 0 ) , p. 189.

5 For some cognate views, cf. H. S. Ellis, " Exchange Control in Germany," Quarterly

Journal of Economics,

6 Economic

Review,

Part II, A u g . 1940, p. 127.

Oct.-Dec. 1934, p. 165.

7 This figure really indicates the peso's depreciation against a (gold) currency the overvaluation of which had already been receiving considerable attention. If the comparison is made with sterling the depreciation appears as less marked, but still almost 50 per cent in excess of the erroneous and uncritically accepted government figure. Sterling moved against the peso to the extent of 28.2 per cent in December as compared with November, 1933, while the average rate for 1934 was 27.9 per cent above that for the previous year. On a weighted basis the depreciation would be rather closer to the figure given for sterling than to that shown for the franc. The demand for

CONTROL

REGIME

OF

I933

99

permits were privileged to submit bids for current exchange requirements—a feature glibly announced as heralding a return to substantially uncontrolled exchange dealings, despite the augmented arbitrariness in the government's control over the supply of foreign currencies. 8 In contrast to the fixed buying rate, the peg for which still remained the French franc, official selling rates were subject to variation from day to day as blocks of foreign currencies—rationed by the authorities as the supply available for that day—were put up to auction. By this means the government might so apportion availabilities as to create, within a given range, almost any spread it desired between the official buying and the average of selling rates. This spread or exchange margin was designed to provide an exchange profits fund which would be used in part to finance subsidies 9 to wheat, corn and linseed producers whenever export prices happened to be below so-called basic prices established by a newly constituted government body, the Grain Regulating Board. In part, also, it would be used to cover the loss to the Treasury in the servicing of its foreign debt—such loss being reckoned in terms of the difference between peso parity and the official buying rate. At the same time the government bestowed legal recognition, so to speak, upon the bolsa negra. It was provided that exchange arising from specified sources, such as tourist expenditures, capital imports, ocean freights, etc., could be disposed of at more attractive rates in francs involved in Argentina's foreign payments is only a small fraction of the total. 8 Cf. the remarks of Minister Pinedo, op. cit., pp. 47-48. 9 The Minister of Agriculture, Sr. Duhau, denied that payments to cereal producers from the exchange profits fund can validly be classified as subsidies, since such payments cannot in the nature of the case enable export proceeds to be larger than if calculated at the selling rate. See El Plan de Acción Económica ante le Congreso Nacional, pp. 121-122. Apart from the host of issues which Duhau's statement suggests, it is sufficient to establish the subsidy character of the payments referred to simply by pointing out that only a portion of Argentine exports were so affected. The differential (exchange) treatment of various export products is the only point that need be established to refute the Minister's claims.

ΙΟΟ

ARGENTINE

EXCHANGE

CONTROL

this market. T h e new exchange scheme thus made room for a free exchange market, officially proclaimed to constitute a " safety valve " permitting capital flight and other transactions for which prior permits would be unavailable. 10 Since our concern in this work is principally with a narration and analysis of the discriminatory aspects of Argentine exchange control, that is to say, principally with the departures from equality of treatment as they have occurred in the practical operation of this control, the reader's attention should be called to the important benefits which could be conferred under such a scheme upon countries with which Argentina entered into special bilateral trade agreements. Henceforth the allocation of official exchange—the type to which Article 2 of the Roca pact related by implication, since this was the only form of exchange subject overtly to official government control— would in the nature of the circumstances deny equality of treatment to those countries not receiving official exchange in proportion to the size of their claims. In other words, an importer of American merchandize, forced to obtain his dollar exchange in the free market at a cost of ( s a y ) 10 per cent in excess of that prevailing in the preferred official market, would be placed at a decided disadvantage relative to a competitor who happened to order from British sources. T h e competitor would be able to convert his pesos into foreign exchange at the official rate and thus have landed costs at 10 per cent less than they would have been had all Argentine importers had to remit at some single rate of exchange, which is to say, precisely according to the usual practice in a regime of uncontrolled exchanges. N o r could complaints of such discriminatory treatment be expected to prove of much effect, given the ease with which the authorities could mask the discriminatory allocation of foreign currencies under the guise of a feature that was essential to the proper functioning of the system of assistance to 10 Economic

Review,

J a n . - M a r c h 1934, p. 10.

CONTROL

REGIME

OF

IÇ33

ΙΟΙ

Argentine cereal producers that was advanced as the basic raison d'être of the new exchange-control scheme. T h e general budgetary situation was such as to preclude the necessary degree of subsidization of agriculture directly from the national treasury, so that the fate of the highly appreciated subsidy program appeared to be bound up indissolubly with the whole of Finance Minister Pinedo's latest exchange control scheme. Actually, however, such was the case only because of the great limitations on Argentina's freedom of action under the Roca treaty. Had this agreement not tied Argentina's hands in the preferential allocation of sterling exchange, Argentina could have gone ahead with every other aspect of the November 28 program free from any worries concerning complaints from some countries of denial of equality or treatment. Since the peso had been patently overvalued for almost two years, the depreciation of November 28 was itself a move in the right direction. I f Argentina wished to derive revenue from the creation of a sizable margin between the official buying and selling rates of exchange, that was her business. T h e same applies to a genuinely free exchange market supplementary to the official market. But notice the manner in which such a control scheme—essentially a neutral balance of payments control technique—would have affected the competitive position in the Argentine market of the different foreign suppliers. A f t e r deductions from the supply of available exchange had been made for the servicing of the country's public external debts, the remaining exchange would have had to be apportioned by means of purely commodity criteria, importers from different national suppliers of the same commodity thus having to make their calculations on a uniform, non-discriminatory exchangerate basis. Argentina would have continued to be supplied by different national suppliers in line with the basic comparative advantages enjoyed by industries in the several world manufacturing centers : for instance, the very small, almost wholly machine-made electric motors would on this basis continue to come from the United States while practically all of the larger

I02

ARGENTINE

EXCHANGE

CONTROL

sizes which involved, e. g., extensive hand winding, could be obtained more cheaply in Britain and on the Continent.

The

cost of manufactured imports in t e r m s o f its exports would be at a minimum, its terms of trade w o u l d be at the point of m a x i m u m favorableness consistent w i t h the underlying conditions of international trade, and n o nation m i g h t fairly have bases f o r complaint on the score o f

A r g e n t i n a ' s denial o f

equality of treatment. O n e of the w o r l d ' s great primary producers would, incidentally, have assisted in the reduction of international commercial barriers and in promoting multilateral trade. F o r the reasons considered in the previous chapter, however, A r g e n t i n a f o u n d that it w a s no longer practicable to conduct her international trade relations on this basis, as much as she would like to have continued to espouse the principle of multilateral balancing. H a v i n g won the unqualified support o f the nation's leading agricultural interests, P i n e d o ' s M i n i s t r y

was

n o w concerned largely w i t h the administrative difficulties arising out of the combined domestic recovery p r o g r a m and f o r e i g n trade control scheme. A n appreciation o f the ramifications o f such controls is indispensable to an understanding of the forces making

for

the

intensification

of

exchange

discrimination

itself. Ι.

THE

GRAIN

REGULATING

BOARD

F o r e m o s t a m o n g the agencies created by the decrees N o v e m b e r 28, 1933 was the Junta

Reguladora

de Granos

of or

Grain R e g u l a t i n g Board. Established f o r the a v o w e d purpose of guaranteeing producers of A r g e n t i n a ' s leading cereal products the full benefit of the latest appreciation o f the currency, 1 1 its immediate aim was that of nipping in the bud any tendency of the farmers to precipitate sales and force o f f e r s on w o r l d g r a i n markets as a result of higher internal prices stemming f r o m the November depreciation. In the light of the sharp del l " The Grain Regulating Board and the W h e a t Review, Oct.-Dec. 1934, p. 143.

Market,"

Economic

CONTROL

REGIME

OF

IÇ33

IO3

cline in cereal prices in the second half of 1933, during which period wheat, corn and linseed fell from 6.30, 4.14 and 13.10 pesos per 100 kilos in July to 5.10, 3.57 and 10.08 pesos respectively in October, 1 2 a depreciation-induced rise in the peso prices of these products might actually have led to such a volume of sales as to materially depress world grain prices, particularly of these three products in the world export of which Argentina's proportion bulks so large. Had anything of this sort been permitted to transpire, the cereal producers might not have been able to realize peso prices augmented by a percentage figure of the order of the 20 per cent increase in the official buying rate of exchange. Considering the sensitiveness of world cereal prices to the numerous factors making for changes in the conditions of supply, it was only an act of farsighted prudence on the part of the Argentine authorities, the more so in view of the experience with valorization schemes elsewhere, to insist upon the control of cereal marketing as an integral part of the November depreciation. By this means the status of these commodities in world markets would be subjected to a minimum of disturbance. The Pinedo depreciation would in consequence have repercussions of a more strictly domestic sort, although these repercussions would depend quite obviously on the behavior of world cereal prices. Further weaknesses in the latter would impart a rather unsatisfactory flavor to Sr. Pinedo's concoction; moreover, Argentina at this date was possessed of terminal elevator facilities solely for the more efficient movement of cereals during the crop year. The facilities were far from adequate for really large-scale storage programs. A s a result the Grain Board had to liquidate its stocks in the course of the season, even though this might entail sizable losses. Such indeed was the outlook for Argentine wheat at the time of the Pinedo decrees. A blessing in disguise to the enterprising Finance Minister, this outlook supplied him with the very argument which he needed for the defense of the much 12 Cf. Boletín Mensual de Estadística Agropecuaria, Jan. 1935, pp. 16-17.

I04

ARGENTINE

discussed exchange

EXCHANGE

margin. 1 3

CONTROL

It remains to be seen, however,

just how seriously w e m a y take the g o v e r n m e n t ' s v i e w concerning the relationship between the N o v e m b e r

depreciation

and the institution o f the other controls and agencies. F i r s t let us describe the functions of the G r a i n B o a r d . B y decree this agency w a s obliged to purchase, exclusively f o r export purposes,

wheat, corn and

linseed

in

whatever

quantities happened to be presented to it by the producers. T h e original basic prices at w h i c h such purchases were to be made, on f. o. b. shipside terms in 100 kilo lots, were 5.75 pesos f o r wheat, 4.40 f o r corn, and 1 1 . 5 0 f o r linseed. 1 1 W h a t e v e r losses arose f r o m sales at w o r l d prices below these basic prices would be debited to the exchange m a r g i n fund. A s to the statistical position of these commodities in late 1933, only that o f wheat presaged extensive debiting to this account ; 1 5 in fact, it w a s not until early M a y , 1934, that spot wheat in Buenos A i r e s w a s selling above the 5.75 pesos level. 1 8 W i t h respect to corn and linseed, however, a much more

favorable position

obtained

f r o m the outset, perhaps in consequence of the relatively greater proportion of world exports of A r g e n t i n e origin shared by these t w o commodities. T h e a v e r a g e monthly spot prices in December 1933 f o r corn and linseed were 4.40 and 12.02 pesos, respectively. 1 7 T h e s e t w o products were therefore

marketed

through ordinary channels without the intermediation of the Grain Board. 1 8 O n the other hand, 86 per cent of the wheat 13 In the words of his chief economic advisor, Dr. Prebisch : " It was for the purpose of meeting these eventual losses that provision was made for an exchange margin." Cf. Economic Review, Oct.-Dec. 1934, p. 143. See also the Preamble to Decree N o . 31,864 of N o v . 28, 1933. 14 Memoria delà Junta Reguladora de Granos, Campaña IÇ33-1934 ( B u e n o s Aires, 1935), p. 8. N o . 3 wheat, of inferior quality, was subsequently purchased at slightly below the basic price. Cf. Economic Review, Oct.-Dec. 1934, p. 144. 15 Ibid., p. 143. 16 Boletín

Mensual

de Estadística

Agropecuaria,

Jan. 1935, p. 16.

17 Ibid., pp. 16-17. 18 Small purchases of corn and linseed were made by the Board in early December, 1933. S e e Economic Review, Oct.-Dec. 1934, p. 144.

CONTROL

REGIME

OF

IÇ33

IO5

sales from December through March, 1934 were to the Board, 1 " a large fraction of which had to be sold to export houses at prices below the basic level. Such losses, fortunately, were largely recouped through sales later in the year at wheat prices reflecting bad harvests in the northern hemisphere. A s may be seen from the following table, Argentina was able to avoid a wheat carryover into 1935. After a year's operation the Board reported a loss of but 8,846,075 pesos, a figure greatly below even the most optimistic of expectations. Meanwhile " earnings " from the exchange margin were growing apace. TABLE

5

G R A I N R E G U L A T I N G BOARD M O N T H L Y W H E A T P U R C H A S E S ,

CANCELLATIONS,

SALES AND S T O C K S , 1 9 3 4 A

(In metric tons) Month D e c . 1933 . . . . J a n . 1934 . . . . . . . . Feb March April May June July August Sept Oct .... Nov Dec .... J a n . , 1935 Total a

.... ....

Purchases

Cancellations

Sales

Stocks a t end of m o n t h

571,450 1,512,653 925,356 423,577 392.578 174.253 10,112 635 145 20

2,700 8,059 2,240 3,009 3.366 3.539 27,151 12.859 7,087 4,316 115

540.579 1,568,020 2,195.334 2,140,863 2,370.363 1,387.936 1,234.179 866,233 756,181 560.286 379.054 167.153 51,708

— —

—

28,171 477,153 295,802 475,039 159.712 1.153,141 136,718 355,722 103,110 191.599 181,117 213.251 115,445 51,708

4.012,129

74,411

3,937,688

— 1,350

— —

— —

T h e Grain B o a r d a n d the W h e a t M a r k e t , " op. cit., p. 144.

This ratio of losses on grain account to " profits " f r o m the margin between official buying and selling rates, representing a f t e r all the principal result of the first year's experience under the Pinedo controls, provides us with one guide with which 19 T h e balance represents premium varieties of hard, high protein wheats of the Bahia Blanca district.

Ιθ6

ARGENTINE

EXCHANGE

CONTROL

to appraise the government's contention, repeatedly expressed, that the institutions and practices introduced by the November 1933 decrees were designed only for the twofold objective of alleviating the position of the cereal producers and relieving the general budget from the added burden resulting from peso depreciation of servicing the foreign debt. T o be sure, the Board would have shown greater losses had the statistical position of wheat not been materially improved by the 1934 droughts in the United States and Canada. T w o observations may be made in this regard. In the first place two-thirds of the 1934 export tonnage had been acquired before the price rise of June. Second, the Board's basic price for wheat had not been fixed at a level markedly above ruling world prices. In the light of these circumstances the year's loss on wheat account would take on special significance only if greatly in excess of the revenue derived from the exchange margin. Actually this was far from the case, since a single month's " earnings " from the difference between buying and selling rates were sufficient to cover the net cost of the Board's subsidies in 1934. 20 Since only approximately one-tenth of the so-called exchange profits fund was required to defray the cost of assisting the cereal producers, it remains to be seen to what extent the balance of the fund wras debited with the depreciation-burdened portion of the foreign debt service. 21 A f t e r a year's operation 20 F o r the ten-month period through September 1934 91,200,000 pesos were to the credit of the e x c h a n g e margin fund. Cf. The Times of Argentina, Dec. 3, 1934. 21-Evidence of the government's use of questionable accounting in this regard may be had from the blanket application of the old peso parity t o the whole of Argentina's external indebtedness, despite the fact that net foreign borrowing did not cease with the country's departure from gold in December 1929 ( o r that all previous borrowing had not been made solely in periods of undepreciated c u r r e n c y ) . There is no segregation of indebtedness by periods, the result being that in view of the peso-sterling, peso-dollar, etc. alignments since 1931 and 1933 a very much overvalued unit of account has been employed for reckoning the burden of servicing post-1931 foreign debts other than those incurred in old-parity, gold-standard countries. O n e example, that of the principal Roca funding loan, is illustrative of the point

CONTROL R E G I M E OF

IÇ33

IO7

o f the Pinedo system it was reported that out of a total of 9 1 , 2 0 0 , 0 0 0 pesos of exchange margin profits, 2 4 , 6 0 0 , 0 0 0 were transferred to the T r e a s u r y to meet the exchange loss on the service of the national debt. 22 W h e n to this figure is added the Grain B o a r d ' s loss for the year we see that barely one-third of of the proceeds of the exchange margin were employed f o r the purpose explicitly proclaimed in justification of the November 1 9 3 3 scheme. It w a s also reported that the authorities had withheld 7 1 , 9 0 0 , 0 0 0 pesos f r o m use up to J u n e 3 0 , 1 9 3 4 , most of which w a s converted into gold and deposited in London to f o r m an exchange equalization f u n d . " In its first year, therefore, the Pinedo Ministry may fairly be said to have failed to carry out its pledge, at least as f a r as concerns the degree of assistance to cereal producers that w a s to have been the product of the exchange control set-up itself. 2 * at issue. These balances having been accumulated during the post-1931 period of peso overvaluation and therefore divorced from the old parity, the conversion rate agreed upon, 43d, represented only a 9.6 per cent depreciation of the peso in terms of sterling. The Argentine depreciation-burdened debt allowance, however, magnifies this to 31 per cent, the difference between the old parity of 11.45 pesos to the pound and the official buying rate of 15. Clearly, the use of the gold value of the peso grossly exaggerates the burden of servicing indebtedness in creditor countries with currencies depreciated with respect to gold—precisely the case with respect to the bulk of Argentina's foreign debts at this time. 22 Cf. Department of Overseas Trade, " Report on the Commercial, Economic and Financial Conditions in the Argentine Republic, 1935," p. 43. It may be of interest to compare this figure of 24,600,000 with the annual average of approximately 50,000,000 debited to the margin fund account designated as " Public Debt." (Cf. Memoria del Departamento de Hacienda, Vol. I (Buenos Aires, 1939), p. 74, where the figure of 203,513,100 pesos is debited to this account for the four-year period 1933-37). The comparison would suggest that the 50,000,000 figure includes entries for the redemption as well as the servicing of Argentine external debts. The source mentioned is far from specific on this important point. 23 Department of Overseas Trade, op. cit., p. 43. 24 As distinct from the benefits flowing from the overdue depreciation of November 1933. This vital distinction has unfortunately been overlooked in not a few instances, a leading case of which is that of Minister of Agriculture Duhau's statistical " demonstration " of the magnitude of the benefits derived from the 1933 scheme. H e unjustifiably identifies the difference be-

ΙΘ8

ARGENTINE 2. T H E

EXCHANGE

DIFFERENTIAL

CONTROL

TREATMENT

OF

EXPORTS

A s a matter of fact the objectives of the authorities were neither two in number nor systematically formulated, so great were the possibilities f o r the opportunistic employment of virtually plenary powers in the hands of a pair of ministers. 25 A t bottom this departure f r o m announced objectives is traceable to the early realization of the fiscal productivity a s well as the ease of extending subsidies under a system of

dis-

criminating monopoly in exchange matters. In general the differential treatment of certain Argentine export products was based on two factors: the regularity or irregularity of their movement in the export trade and the country of destination. T h u s on F e b r u a r y 24, 1 9 3 4 the E x c h a n g e Control Office announced a list of products not commonly exported, exchange proceeds f r o m the sale of which could be negotiated in the free market. A m o n g these were wild animal skins, garlic, yerba mate, tobacco, fruit in general, honey, stearine, wine, cotton linters, o n y x , corn bran and mica. 26 Cheese was added in March, while in J u l y a resolution of the Finance Minister provided that frozen turkeys and frozen ducks could be sold at tween pre- and post-depreciation prices of Argentina's leading exports with the accomplishments of the Pinedo-Duhau trade and exchange control scheme. Far from the two being identical, if Sr. Duhau's procedure is pushed to its logical conclusion one finds that he will have demonstrated that Argentine producers were deprived of gains roughly commensurate with the government's " earnings " from exchange control ! The implicit assumption here, of course, is that the average selling rate ruling during the period in question may be taken as some sort of equilibrium rate of exchange. Although the writer is cognizant of the difficulties linked with such an assumption, the rough conclusion drawn from it is at least suggestive while that of the Minister is misleading in the extreme. For Sr. Duhau's position, see El Plan de Acción Económica ante et Congreso Nacional, pp. 112, 120, and 135. 25 Mindful that Argentina has a legislative system constitutionally patterned after that of the United States, The Economist characterized the procedure by ministerial decrees under the November 1933 set-up as "tantamount to a mild financial dictatorship." Sept. 22, 1934, p. 537. 26 La Nación, Feb. 25, 1934.

CONTROL

REGIME

OF

I933

lOQ

27

the official selling rate less 2 per cent. A s successively more important exports came within the scope of exchange subsidies without eliciting anything on the order of antidumping retaliation, the authorities went ahead with piecemeal subsidization. Next in line f o r special treatment were eggs, all save 2 per cent of the exchange margin being surrendered to egg exporters after September 28, 1934. Meanwhile the politically powerful Rural Society was bringing pressure to bear for permission to sell wool export bills in the free market. A s one of Argentina's leading export products, the authorities had to tread with care in the handling of this request. A compromise was finally reached on October 24, all wool save that in the hands of or title to which rested in the export houses being permitted to be sold at the official selling rate less 5 per cent.28 That this was a concession of the first order may be gathered from a mere inspection of the exchange rates ruling in the several markets at this time : Wool bills up to this date had regularly to be sold to the government at the official buying rate of 1 5 pesos to the pound, whereas with the average October selling rate at 17.07 a 5 per cent deduction still enabled the grazers in future to realize a rate of 16.22 pesos for their bills. Had their original request been granted, however, they would have been able to dispose of their drafts at the high free market rate of 18.96 pesos to the pound—equivalent to a bounty of 26 per cent.29 The second criterion for the differential exchange treatment of Argentine exports was that of the country of destination. Officially the destination rubric was strictly limited, only those countries bordering on Argentina being favorably treated. According to this rule, laid down in Sr. Pinedo's resolution of December 1 5 , 1933, 3 0 all exports to Uruguay, Brazil, Paraguay, Bolivia, and Chile were allowed to be invoiced in pesos and to 27 Ibid., July 20, 1934. 28 The Times of Argentina,

Oct. 29, 1934, p. 7.

29 For the exchange rates cited in this and the following paragraph, see Table 26. 30 Cf. Banco Central y Control de Cambios

(Buenos Aires, 1939), p. 57.

IIO

ARGENTINE EXCHANGE

CONTROL

all intents and purposes treated as purely internal transactions. Since importers in these countries could obtain Argentine pesos at the favorable free market rate of exchange, goods moving to them were thus in effect reckoned in terms of free market pesos. W i t h the average free rate f o r 1 9 3 4 standing at 1 9 . 9 2 , it follows that as compared to shipments of the same goods to non-neighboring countries such exports were favored with what really amounted to an ad valorem bounty of 3 3 per cent. B u t A r g e n t i n a actually w a s not limited to the geographical

five

neighbors f o r exchange control purposes. A s a matter of fact non-contiguous P e r u f o r some time received similar treatment. 31 N o r w a s special treatment on the basis of destination confined to its L a t i n A m e r i c a n " neighbors " ; for it is known that grain exports to J a p a n in 1 9 3 4 , representing but a f e w cargoes of the test-shipment variety to a country which was not a regular importer of A r g e n t i n e cereals, were also given free market treatment within the scope of the " irregular exports " rule. 32 W h e n , 31 It is not known how long Peru received neighboring country treatment prior to the Lima Conference of 1938, but it is believed to have been only intermittently. Upon the return of the Argentine delegation from this Conference, however, Peru was officially included among the " neighboring " countries for exchange control purposes. See Boletín Oficial, Jan. 26, 1939. La Prensa, Jan. 13, 1939, comments favorably upon this step. 32 Source confidential. Something in the nature of a precedent was at hand in connection with this scheme. The old Exchange Control Commission in 1932 had attempted to stimulate exports from small, infrequently used ports by allowing the exporters using such facilities to dispose of their exchange directly to Argentine remitters, as a result of which the former were able to obtain rates intermediate between the rigid official rate and those obtaining in the black market. Such exports originally being consigned to China, the peso rate resulting therefrom has since been referred to as the " Chinese peso." For details, see El Plan de Acción Económica ante el Congreso Nacional, pp. 27-28. Of a related character was the subsidy scheme announced in connection with the sale of 10,000 tons of frozen beef to the Italian army in 1934. Bidding but 1.15 lire per kilo, the Argentine frigoríficos found they could pay but 8 centavos to the cattle growers. Since this was below the market level prevailing at the time for this type of cattle, the government announced its intention of paying the frigoríficos a bonus equal to the difference between 8 centavos and the effective purchase rate providing the packers would pay prices from 11 to 13 centavos per kilo live weight for all cattle acquired for this transaction. Cf. The Times of Argentina, Aug. 13 and Sept. 22, 1934.

CONTROL

REGIME

OF

1933

1 1 1

however, northern hemisphere droughts of 1 9 3 4 presaged shipments of Argentine corn and wheat to the United States and Canada—both being f a r from regular importers of these products—the authorities terminated the use of this very elastic criterion for the subsidization of Argentine cereal exports. 3.

BUTTRESSING

THE EXCHANGE

ADVANTAGE

Returning to the matter of the relation between the November 1933 exchange control scheme and the discharge of Argentina's obligations under Article 2 of the Roca pact, it may be pointed out that the concessions granted by the terms of this Article, great as they were, might not be sufficient to assure British predominance in Argentine trade in the face of world recovery. U p to about the third quarter of 1 9 3 4 there was no question that in the general state of affairs then prevailing the British position would be one of expansion and consolidation. The official selling rate, although weakening slowly, remained between 1 5 and 20 per cent below the price of foreign currencies in the free market. A margin of this size in favor of its products surely could be counted on to reduce in considerable measure the importation of goods of rival national origins. The Argentine authorities were in fact apportioning official exchange in such fashion that as f a r as the import trade was concerned 33 British (as well as the much less important Belgian, Dutch and Swiss) traders were obtaining practically all the exchange sought, while those applying for dollars and several other currencies were for the most part turned down. The latter almost invariably had to have recourse to the higher-priced free market. Whenever complaints were made concerning such unequal treatment, and they were lodged with the authorities at frequent intervals, the standard reply was that the Exchange Control Office was granting official exchange (prior permits) in proportion to the respective currencies available—i. e., in proportion to the quantity of exchange created by Argentine 33 Those remitting on financial account were somewhat less fortunate. Cf. Monthly Journal, Sept. 1934, p. 33.

112

ARGENTINE

EXCHANGE

CONTROL

exports to the several countries—and that it could not be expected to evade its treaty obligations by using its holdings of ( s a y ) pounds and belgas to provide a large fraction of the dollar exchange requested. In effect it contended that it was following no active policy at a l l — a p a r t f r o m that laid down in its commercial treaties. In the face of such alleged passivity there was little that importers of A m e r i c a n merchandise could do about an unsatisfactory but still tolerable condition of affairs. S o m e w h a t ironically, those favored by A r g e n t i n e exchange discrimination were the next to reveal dissatisfaction with the operation of exchange control. Rates in the two markets were TABLE

6

M O N T H L Y AVERAGE OFFICIAI AND FREE MARKET STERLING EXCHANGE RATES, JANUARY 1 9 3 4 ΤΟ J U N E 1 9 3 5

Official Market

Free Market

JAN. 1 9 3 4

16.44

19.88

JAN. 1 9 3 5

17.01

FEB

16.66

19.50

FEB

16.93

18.99

MARCH

17.08

20.07

MARCH

16.91

18.90

April May June July . Aug. Sept. Oct. . Nov. Dec.

17.12

20.80 21.88

18.92

16.95

18.94

17.39

20.67

17.00

18.71

17.43

20.40

17.02

18.65

17.28

18.72

17.03

18.52

17.15

18.66

17.07

18.96

17.07

19.65

17.09

1950

April May . June . July . Aug. Sept. Oct. . Nov. Dec.

16.91

17.44

Sources: Economic

Review,

Official Market

Free Market 19.48

17.03

18.24

17.02

18.04

17.02

18.12

17.02

18.09

Oet.-Dec. 1934, p. 165 for 1934, and

Annual

Report, Banco Central de la República Argentina (Buenos Aires, 1937), p. 1 2 for 1 9 3 5 . m o v i n g somewhat inversely (see Table 6 ) , those in the official sector weakening before reaching a degree of stability while appreciation characterized the free market, except f o r a brief period toward the close of 1934. F r o m an average margin of 20.6 per cent in f a v o r o f official market remitters during the first seven months of 1934, the advantage w a s almost halved

CONTROL

REGIME

OF

1933

H3

during the remainder of the year, as the August-December free market rate averaged only 1 1 . 8 per cent above the auction rate. This latter relationship obtained also for the first part of 1935. a * Despite the valuable Roca tariff concessions, the question now in the minds of British commercial interests centered about the value of Article 2 as a device for the restriction of imports competitive with their own as long as a spread of but 1 0 or 1 1 per cent existed between the controlled and free exchange rates. With respect to a number of commodities it may be no exaggeration to assert that the comparative advantages enjoyed by some rival suppliers may have more than offset the lessened exchange advantage just indicated. This seems unquestionably to have been the case regarding Japanese textiles. 35 Not a few items of United States origin must also have been made competitive at but a 1 0 per cent exchange disadvantage. A t any rate representations on the part of the British trade interests appear not to have been in vain, for by the terms of Article 1 6 of (Central Bank) L a w No. 1 2 , 1 6 0 of March 28, 1935 the government was empowered to levy an exchange surcharge of up to 20 per cent in excess of the officiai selling rate for all imports effected without prior exchange permits. Speculation as to the precise magnitude of the surcharge having been rife for some time after the bill appeared certain to be enacted into 34 Although specific official information is wanting, it seems that the authorities were operating in some fashion in both markets almost from the beginning of the 1933 control set-up. When queried by a member of the Chamber of Deputies as to whether the government was operating in the free market, Minister Pinedo replied in the affirmative and added : "And it is operating to a much smaller extent than it should operate, in my opinion; all of which is not to say that it may not be more active in future." He also pointed out that by his resolution of Dec. 5, 1933 the Exchange Control Office was authorized to sell up to £250,000 or its equivalent of official exchange monthly in the free market. Cf. El Plan de Acción Económica ante el Congreso Nacional, pp. 40-41. 35 Prior permits were withheld from Japanese importers beginning in February 1934. Cf. Monthly Journal, July 1934, p. 14.

114

ARGENTINE EXCHANGE

CONTROL

3

l a w , ® the import trade learned on A p r i l 1 3 that the g o v e r n m e n t w a s to exact the full 2 0 per cent, calculated a f t e r deducting the difference between market rate.

38

the official selling

rate a n d the

37

free

T h u s importers w i t h o u t prior p e r m i t s — t h e situa-

tion w h i c h h a s obtained w i t h respect to well o v e r half o f imports f r o m the U n i t e d S t a t e s o v e r the past e i g h t

the

years—

w o u l d in f u t u r e h a v e to remit at not less than 1 2 0 per cent of the official rate. W i t h this step, needless to add, the f r e e m a r k e t remained f r e e in the usual sense only w i t h respect to nontrade a n d capital transactions. A t last the prior permit system reduced f r a n k l y to a trade r e g u l a t o r y device.

was

Simultaneously

the f r e e market, originally passed off as the e x c h a n g e control s c h e m e ' s " s a f e t y v a l v e " w i t h respect to both t r a d e and non36 Statutory provisions prior to 1935 did not even explicitly recognize the exchange control set-up in Argentina, although passing reference to certain aspects of the control scheme was made in 1932 when Article 101 of L a w No. 11,671 of Dec. 29 legalized the t a x of one mill on all bank purchases of foreign currencies and provided for the imposition of fines for the infraction of same. See the comments of Deputy Martinez, Diario de Sesiones, Cámara de Diputados, Vol. V I , 1933, p. 186. L a w No. 11,826 of Oct. 6, 1933 also deals indirectly with exchange control. But straightforward treatment of the control regime is to be found for the first time in the rider attached to the Central Bank bill of 1935. Article 16 of this law, as mentioned in the text, deals with the 20 per cent surcharge, while Article 17 gives the Executive Power authority to " determine the requirements necessary for establishing the nature of all exchange operations." It is generally taken for granted by the authorities that Law No. 12,160 constitutes the ex post facto legalization of the regime initiated in October of 1931. 37 In the original draft of the bill no provision was made for the deduction of the difference between the selling and free rates, so that the surcharge plus the free market differential would have placed importers without prior permits at a disadvantage of well over 20 per cent. Cf. The Times of Argentina, April 22, 1935, p. 28. 38 "As from March 1935, imports coming from countries which had no commercial or payments agreement with the Argentine have been subjected to license and, if imported without license, have paid a fluctuating t a x sufficient to raise the exchange rate by 20 per cent above the official selling price." World Economic Survey, Fifth Year, 1935-36 (Geneva, 1936), p. 2 U n. It is not true that imports f r o m countries specified were subjected to license. Absolute freedom of importation prevailed at this time. It was not until J a n u a r y 1, 1939 that Argentina resorted to import licensing, as will be pointed out below.

CONTROL REGIME OF I 9 3 3

115

trade movements, w a s deprived of so much of its freedom as to constitute a barometer almost devoid of significance to the import trade. A w o r d m a y be said about the government's position with respect to the exchange surcharge. Surprisingly little emanated f r o m the authorities on this subject during the bill's consideration by the A r g e n t i n e Congress, doubtless owing to the f a c t that the relevant Article in the bill w a s submerged in the labyrinth of detail concerning the formation of the long-awaited central bank. J u s t prior to passage of the measure, however, the E x e c u t i v e P o w e r sent a brief message to the legislators concerning the surcharge rider. Contending that this provision w a s necessary to prevent a reappearance of factors of disequilibrium, it w a s stated that the 2 0 per cent exchange surcharge would enable Argentina to avoid " a premature increase in imports without prior permits." S u c h an increase it w a s felt would inevitably ensue upon the continued unimpeded access o f importers to a considerably appreciated free exchange market, with the likely result—in view November

of

the experience prior

1 9 3 3 — t h a t a fresh accumulation of

to

commercial

claims might again plague the financial authorities. T h e E x e c u tive's message emphasized that a recrudescence of peso blockage must be avoided with the greatest possible energy. 3 9 W h a t e v e r 39 For details, cf. La Prensa, April 29, 1935. Ever vigilant, La Prensa concluded that the undefined " premature increase " as regards imports must mean an increase occasioned by the appreciation of the currency. But this, it added, would be tantamount to asserting that purchases parallel to the nation's means of payment are disequilibrating. With respect to the fear of a recrudescence of peso blockage, it should be noted that as contrasted with the 1931-33 period of exchange fixity during which (1) the currency was becoming increasingly overvalued and (2) many importers seriously believed they would be accorded official exchange in due course, the government was now trying to invoke the fear of peso blockage in the face of (1) appreciation in the free market and (2) the fact that businessmen contemplating free-market transactions did not so much as think that there would be any assurance of their obtaining exchange cover at anything except some wide range of rates. This of course is not to say that they may not have based their order plans on ruling free market rates of exchange.

Il6

ARGENTINE

EXCHANGE

CONTROL

else m a y be said f o r this public p r o n o u n c e m e n t , it w a s certainly not w a n t i n g in apparent n e u t r a l i t y o f position. I t is indeed s u r p r i s i n g that the a u t h o r i t i e s failed to s h o w a n y more subtlety than that i n v o l v e d in the decision to h a v e recourse to the idea o f

undifferentiated

balance-of-payments

equilibrium at this c o m p a r a t i v e l y late date. H a d the f o r c e s o f the m a r k e t been permitted to o p e r a t e w i t h relative

freedom

apart f r o m the determination o f s o m e unique e x c h a n g e rate, an a r g u m e n t couched in the l e x i c o n o f e x c h a n g e

disequilibrium

w o u l d at least h a v e appeared t o be c o m f o r t a b l y r e m o v e d f r o m the a r m - c h a i r level. B u t in A r g e n t i n a n o t e v e n the " f r e e " market, except f o r the period u p t o late 1 9 3 4 , m a y be said to h a v e been i m m u n e f r o m o v e r w h e l m i n g a u t h o r i t a r i a n influence. Moreover, assuming

f o r the s a k e o f

the a r g u m e n t that the

authorities had n o material influence u p o n the f r e e market, and abstracting f r o m import r a t i o n i n g , it is b y n o m e a n s admissible to a r g u e that the state o f b a l a n c e - o f - p a y m e n t s debits m a y be a n a l y z e d in terms o f b u t a s i n g l e c o m p o n e n t o f such

items.

T h i s statement holds even if the c o m p o n e n t in question is unequivocally the largest item on the debit side ; 4 0 y e t f r e e m a r k e t imports did not bulk large in c o m p a r i s o n to those paid

for

t h r o u g h the official market. I t stands t o reason, t h e r e f o r e , that an a r g u m e n t in terms o f b a l a n c e - o f - p a y m e n t s equilibrium can h a r d l y be taken seriously w h e n the w h o l e c o m p l e x o f rates is not g i v e n explicit treatment. N e e d l e s s to a d d , the seriousness o f the a r g u m e n t is f u r t h e r drastically reduced w h e n w e discard the s i m p l i f y i n g a s s u m p t i o n s o f a g e n u i n e l y f r e e m a r k e t and the absence o f import control. Critically v i e w e d , the g o v e r n m e n t ' s d e f e n s e o f the 2 0 per cent e x c h a n g e s u r c h a r g e is untenable in terms o f the supposed link between i m p e n d i n g disequilibrium in its international accounts a n d the level o f rates in the f r e e m a r k e t . T h e decisive " variables "

were

in

fact excluded

f r o m the a r g u m e n t .

A

40 Cf. some suggestive related remarks by S. E. Harris in his review of Gilbert's Currency Depreciation and Monetary Policy, Ass'n, Sept. 1939, p. 616.

in Jour. Am.

Stat.

CONTROL

REGIME

OF

I933

II7

glance at the outstanding characteristics of the foreign exchange picture will readily give substance to this statement. On the export side we find that the basic buying rate structure—i. e., including those effective rates having bounty elements—had been nominally unchanged for some time, although they had been in effect somewhat reduced as costs trended upward. Second, the official selling rate had been firming slightly over the past twelvemonth (see Table 6 above), while Argentina's hands were tied as regards the allocation of much the greater part of this exchange. Finally, the free market rate had been firming rather rapidly. A s a matter of fact, in the face of these circumstances the government's position seems to be nothing but a case of ex post reasoning. If it really entertained the idea with any degree of seriousness, our analysis only reveals the tenuousness of its argument. Incidentally, we need hardly mention the incompleteness of our own refutation, since nothing has been said concerning the internal consistency of an argument centering about balance-of-payments equilibrium when several manipulated exchange rates and all their interrelations are involved, not to mention the important matter of cost-price relations domestically and relative to those prevailing abroad. But enough has been said in this regard to justify our proceeding to the matter of the real reason for the surcharge. A s was pointed out above, the narrowing of the gap between the official and free rates which had set in about mid-1934, until a margin of approximately 1 0 per cent separated the two prices, appeared to be the principal concern both of the Argentine authorities responsible for implementing their bilateral trade treaties 41 and the foreign exporters dependent upon a 41 A s Sr. Vido, a member of the former Exchange Control Commission, has pointed out, the authorities realized from the outset that although the establishment of a free market would serve a useful purpose in displacing the black market it might also develop to the point where it could easily interfere with the anticipated functioning of the official market. The latter situation would obtain whenever quotations in the free sector had become about as attractive or more attractive than those under official control. " For with these two rates close together, firms would be in a position to import from

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substantial exchange preference for the maintenance of their position in the Argentine

market.

Since

the

government's

emphasis upon impending balance-of-payments disequilibrium was somewhat exaggerated, it is difficult to see how it can be denied that what the government was really striving for was the restoration of the differential exchange advantage enjoyed by British exporters

42

during the first part of

regime. A s was so neatly remarked by

the Pinedo

La Prensa, we must

seek the origin of the 2 0 per cent surcharge in the disillusionment of privileged exchange nations when the free market peso had so materially improved. 43 A n d as regards the timing of major moves in its relations with Britain, it w a s essential to consider the general atmosphere in which such feelings might proliferate. Specifically, the Argentine authorities hardly could permit the unmitigated expression of such disillusionment in influential London circles, since the gathering at this time of Empire spokesmen in celebration of the K i n g ' s Jubilee might have meant the employment of the less favored peso differential to upset the delicate Argentine-Dominions balance in favor of members of the Empire. 44 countries offering the most advantageous terms, thus rendering inoperative the mechanism established in the bilateral treaties and making ineffective those privileges accorded countries which are purchasers [sic. The United States is not a purchaser in this sense!] of our products." Vido, op. cit., p. 1056. 42 As well as exporters in other countries with which Argentina had signed trade treaties patterned more or less after the Roca pact, as is clearly implied by the context. W e pointed out in an earlier chapter that it does not follow that the other treaty countries may be placed on a par with Britain in this regard; for whereas the terms of the Roca accord and the seemingly ever changing pattern of Anglo-Argentine commercial relations shape Argentine policy, the other pacts simply guarantee most-favored-nation treatment. The German clearing, dating from September of 1934, is in an intermediate position, even though in a given status of Anglo-Argentine bilateralism there may appear to be no formal dissimilarity with the British case. 43 Jan. 14, 1936. Interestingly enough, this organ remarked editorially while the bill was before Congress that the surcharge was " a measure hostile to the trade of the United States." March 5, 1935. 44 " In London at the present are gathered statesmen from all of Britain's Dominions and Colonies to join in celebrating the King's Jubilee as well as

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Additional light on some of the circumstances surrounding the imposition of the 20 per cent exchange handicap on nonprivileged trade is again supplied by the semi-official British agency most concerned with the matters under discussion. T w o days before 45 Finance Minister Pinedo broached the government's decision to exact the full 20 per cent tax on free market imports, the British Chamber of Commerce in the Argentine had written to its members a confidential letter revealing in the most candid manner some of the difficulties with which United States trade (in particular) has had to contend. This letter, furthermore, is quite suggestive as to the extra-treaty advantages enjoyed by British exporters in the Argentine market. 46 B R I T I S H C H A M B E R OF COMMERCE IN* T H E A R G E N T I N E R E P U B L I C C. 368

APRIL I I T H ,

1935

To all Members of the Chamber. Dear Sirs : — BRITISH TRADE W I T H

ARGENTINA

In view of the provisions of article 16 of Law No. 12,160, which provides for a surcharge of up to 20 per cent on the official rate to discuss problems of inter-imperial trade. W h a t a g r e a t opportunity, in an a t m o s p h e r e f e r v e n t with f r a t e r n a l friendliness, t o promote a policy of E m p i r e Economic Cohesion a t the expense of, f o r example, A r g e n t i n a , a n d how c a n the friends of A r g e n t i n a effectively defend her t r a d i n g position against the claims of the D o m i n i o n s unless she increases considerably the amount of h e r purchases f r o m t h e U n i t e d K i n g d o m . " F r o m speech of M a j o r McCallum, C h a i r m a n of the B r i t i s h Chamber, at the Chamber's Jubilee Lucheon. Monthly Journal, M a y 1935, p. 18. 45 La Prensa lost no time in censuring the authorities f o r acquiescing in such provocative favoritism. See its issue of April 23, 1935. T h e text of the C h a m b e r ' s letter, in Spanish, is also to be found in this issue. Convinced t h a t the " f a c t s spoke f o r themselves," La Prensa did not comment on this letter. T h e one r e p r o d u c e d in t h e t e x t below is a copy of the original. 46 T h e italicized portions in t h e t e x t of the letter a r e not in the original. T h e s e should d e m o n s t r a t e beyond question the semi-official character of t h e Chamber, a f a c t which is well k n o w n a m o n g A m e r i c a n and other business men o p e r a t i n g in the A r g e n t i n e . A c t i n g as the clearing house f o r the British Embassy, this o r g a n i z a t i o n f r e q u e n t l y broaches statistical a n d other t r a d e material p r e p a r e d f r o m official British and A r g e n t i n e sources by the E m b a s s y .

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of exchange for the payment of goods imported without prior permits, it is considered that this affords a very favourable opportunity to increase imports of United Kingdom origin into the Argentine. The Chamber has been following up this matter in the proper quarters and has been informed officially that the full 20 per cent will be applied to all imports without prior permits from countries with which the Argentine has an unfavourable trade balance. T h e Chamber has also been informed that the same procedure will be applied by Government Departments in Public Contracts (licitaciones), i. e. for purposes of comparison, tenders for goods from countries with which the Argentine has an unfavourable trade balance will have the exchange calculated at the official rate plus 20 per cent. T h e Chamber's efforts on these lines will be continued and Members of the Chamber are invited to send to the Secretary without delay a list of any licitaciones for which they are quoting prices to a State Department where they think that an official communication to the Department concerned might be of assistance. It is also found that in some cases prior permits for countries with which the Argentine has an unfavourable trade balance are being obtained by importers on the grounds that the articles are of prime necessity and cannot be obtained from any other country except that for which the permit is requested. Contrary to such assertions, it has been proved in certain cases that the goods can be obtained, on the same or even better terms, from the United Kingdom and, for the purposes of its representations, the Chamber would be glad if Members would forward to the Secretary particulars of any cases that may come to their knowledge where prior permits which otherwise would not be granted by the Control Office are being obtained on the grounds mentioned above. Y o u r s faithfully, Signed : SECRETARY.

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A word may be said in passing concerning a few aspects of this revealing letter. It will be noted that the state of Argentina's bilateral trade balances is referred to in several instances, for in line with the drive just getting under way imports from countries with which the trade balance is unfavorable 4 7 are looked upon as in large measure the employment of Argentina's sterling balance for other than British merchandise. In effect, therefore, the complaint represents an endeavor to persuade Argentina to allocate an even larger fraction of the sterling proceeds of its exports to importers of goods of British origin. A s we shall have occasion to point out presently, under Article 2 of the Roca pact such persuasion would require a reduction in the deduction originally agreed upon for the servicing of Argentina's non-sterling foreign obligations. A second feature of the letter relates to the manner in which Government Departments are to handle bids submitted by various national suppliers. Since this had not been dealt with specifically in the Roca accord, this provision represents another extremely important concession to its partners in bilateralism. Briefly, this provision meant that even though the different Government Departments would in all cases obtain nothing less favorable than official exchange—regardless of the country of o r i g i n — those submitting bids on government work in (e. g . ) dollars would have to translate such figures into pesos at the official rate and then add the 20 per cent exchange surcharge. A s contrasted with the role of the surcharge in the field of private trading, the extension of the 20 per cent differential to public contracts involved a form of trade discrimination based on nothing more than an exchange-rate fiction. For in effect the Government Departments were in possession of prior p e r m i t s — with their guarantee of official exchange—, yet had to refuse low bids (reckoned at the uniform official rate) if the bidders happened to be in a country with which Argentina's trade 47 We shall discuss below how exchange discrimination against the United States continued despite the succession of favorable trade balances vis-a-vis the United States from 1935 to 1937. See below, Chapter VI.

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balance was adverse. Numerous American firms have lost heavily as a result of this procedure. Thirdly, the penultimate paragraph in the Chamber's letter brings to mind a further interesting aspect of Argentine exchange control. It is known that the technical men in some of the Government Departments and agencies—the writer's informant specifically mentioned the case of the Yacimientos Petrolíferos Fiscales (Government Oil Fields)—will frequently draw up specifications such that only American firms are able to supply the item in question, so marked is the superiority of many types of American equipment. In most cases of this sort, however, the non-technical, politically-appointed superiors will overrule the technicians by the simple expedient of permitting bidding by firms producing substantially identical goods. 49 4 . T H E C A M P A I G N FOR R E V I S I O N OF T H E ROCA T R E A T Y

After the British trade spokesmen had again revised their anticipations upward following the imposition of the exchange surcharge," the next step was the campaign for revision of the Roca-Runciman treaty. Efforts to revise the Roca pact began just midway through the original three-year agreement. The 48 In addition to the case of the Government Oil Fields, which produces and markets the bulk of Argentina's petroleum products, there are such large agencies as the Obras Sanitorias (Government W a t e r Company), State Railways, and elevator commissions. 49 Representative of the method of expressing its gratitude for favors received while at the same time throwing out suggestions for still additional preferences, is the following f r o m the leading British trade-building agency in the Argentine : " A great deal of agitation has arisen in connection with this disposition [the 20 per cent exchange surcharge],' which is held in many quarters to be of the nature of a special concession in favour of Great Britain. This, of course, is not the ostensible object of the surcharge, but even if it were so, such strongly worded protests would appear to be decidedly exaggerated. Surely there is no more natural thing in the world than to grant concessions to one's best customer! Unfortunately, so f a r as British trade is concerned, there is reason to believe that in one direction at any rate—textile imports—the surcharge will have little or no effect on the most serious of all competition, that of Japan." Monthly Journal, April 1935, p. 33. (Italics added).

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seemingly unending chain of campaign developments,

which

cluttered up the pages of Buenos A i r e s dailies f o r months on end, consisted of all manner of charges and counter-charges as well as futile arguments o f the order o f that relating to the party constituting

the

" real "

beneficiary

under

the

1933

accord. 5 0 T h e revisionist campaign w a s actually hastened by the creation of

the 20 per cent exchange differential in f a v o r

of

privileged traders. S t e m m i n g f r o m the defensive position into which British trade spokesmen were forced, as a result of manifold attacks upon the surcharge, were a profusion of complaints as to the adjustments still to be made by A r g e n t i n a if

the

republic w a s to continue to e n j o y w h a t was claimed to be the liberal treatment accorded her produce by the United K i n g d o m . O n the other hand critics o f commercial bargaining o f

the

R o c a type were pressing their arguments, designed to s h o w that further concessions by A r g e n t i n a would be of no avail. A l t h o u g h British representations on the general subject o f exchange control range all the w a y f r o m the pattern o f

rail

and road competition in A r g e n t i n a to the degree of supervision which the republic wished to exercise over the operations of the foreign-owned frigoríficos, their

spokesmen

seemed

there was one matter about w h i c h particularly

insistent

that

Anglo-

A r g e n t i n e relations left much to be desired. T h e matter in question was that of the more or less regular A r g e n t i n e active balance in the accounts between the t w o nations. Despite the fact that Britain has been the only foreign country permitted to 50 This aspect of commercial bilateralism, although it never finds e x pression in attempts at the quantitative demonstration of the effects of such two-way balancing, is perhaps the most distasteful phase, both to officialdom and the general public " bombarded " with material and allegations stressing the uningratiating features of the respective national positions, of a system of commercial policy in which the greatest premium is placed upon the ability of one of the parties to outmaneuver the other in the scramble for or the retention of foreign markets. The contrast with unconditional most-favorednation treatment is quite suggestive.

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have representation in the administration of exchange control,51 together with the circumstance that at no time was Argentina accused of not fulfilling her obligations under Article 2 of the Roca accord, it was felt that the alleged recurring active balance of payments implied that the limit of the special concessions which might be granted to British trade had as yet not been reached. And like the mercantilism of old, no small part of such argumentation ran in terms of mere trade balances. Just as one notes degrees of sophistication in the writings of the mercantilists, however, so too we find that the contemporary protagonists of narrow trade bilateralism were not incapable of reasoning with apparent persuasiveness in general balance of payments terms. Thus, in connection with its defense of the exchange surcharge, we find the British spokesmen arguing as follows: " T h e recently sanctioned surcharge of up to 52 20 per cent . . . we regard as definitely helpful to imports from the United Kingdom as well as certain other countries with which Argentina has a favourable balance of trade. In some quarters, interests which consider themselves adversely affected have characterized the measure as arbitrary and discriminatory, but surely mature reflection will convince them that there is much real statesmanship behind it. Take, as an example, the case of United Kingdom-Argentine trade, last year. According to British Board of Trade Returns the United Kingdom purchased from Argentina to c. i. f. value of £47,000,0x30, whereas Argentina purchased from the United Kingdom to f. o. b. value of only £14,500,000. Allowing £15,500,000 which is the estimated amount of Financial Services and other invisible imports, leaves a balance in favour of Argentina of £17,000,000. But we are asked to assume that trade [sic] is actually balanced because exports to the United Kingdom are carried in British ships and the freights, insurance, etc. are stated to amount to the enormous figure of £10,600,000. The value of 51 Cf. The

Times

of Argentina,

Oct. 30, 1933, p. 30.

52 This source is reproducing the terminology of the statute, for the surcharge was reckoned at the fixed level of 20 per cent.

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imports f r o m the United K i n g d o m f o r a similar reason should be increased by £ 1,200,000, which leaves £5,200,000 to cover the service o f debts other than United K i n g d o m , exchange lag and the value o f uncontrolled exports to the U n i t e d K i n g d o m . " " A r r a n g e d in two-column f o r m , this A n g l o - A r g e n t i n e balance o f payments f o r 1934 appears as f o l l o w s : Credit

Debit

C.i.f. value of Argentine exports . . . £47,000,000

F.o.b. value of Argentine imports . . £14,500,000 Financial services and other invisibles 15,500,000 Freight, insurance, etc. 11,800,000

£47,000,000

£41,800,000

Credit balance

£ 5,200,000

A l t h o u g h there is no mention of the fact in the Journal,

Monthly

this simple balance of payments must be considered as

the consensus o f the British and A r g e n t i n e authorities. F o r in publishing some data about a year later in connection with its allocation of official sterling exchange, 5 4 the A r g e n t i n e Finance Ministry virtually confirmed the £5,200,000 balance. A c c o r d ing to this latter source 45,000,000 pesos were allocated f o r debt service outside the United K i n g d o m while at the close o f 1934 a balance remained in f a v o r of Great Britain of 36,201,000 pesos. A t the conversion rate of 15 pesos to the pound, this amounted to £3,000,000 f o r the debt service deduction stipulated in the R o c a pact and £2,413,000 as the net balance, o r a total of £5.413,000 as compared with the British Chamber's £5,200,000. T h u s by admission o f the A r g e n t i n e authorities themselves w e m a y take the Chamber's figures f o r 1934 as indicative o f the state of a f f a i r s officially recognized as obtaining f o r the y e a r in question. It will be recalled that Article 2 of the R o c a pact required A r g e n t i n a to allocate official exchange up to the f. o. b. value 53 Monthly

Journal,

54 See Monthly

May 1935, p. 18.

Journal,

April 1936, pp. 27-28.

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ARGENTINE

EXCHANGE

CONTROL

of its exports to Great Britain less a reasonable deduction, which as we have seen was fixed by agreement at £3,000,000 annually, 65 for the servicing of Argentina's external public debt not payable in the United Kingdom. According to the British this obligation was unfulfilled to the extent of £2,200,000, while the Argentine authorities showed an even greater unallocated balance at the close of this particular year. Why, then, did not Britain formally charge Argentina with violation of Article 2 of the 1 9 3 3 exchange agreement? A s a matter of fact no such formal complaint was made.59 We are left therefore with but a single suggestive conclusion : Apparently the announced deficit in the sterling allocation statement represented but a bit of joint strategy designed to quiet those countries that were unambiguous losers under Argentina's discriminatory exchange control set-up. Let us explore this matter in greater detail. It will be noted that in what appears to have been a balance of payments statement reached more or less in agreement with the Argentine authorities the estimated portions among the debit items make up £27,300,000 out of a total of £41,800,000. The margin of error involved in these estimates may of course be quite great. Fortunately, appraisal of their accuracy is facilitated by the Argentine government's publication of a few statistical items relating to the quantity of official exchange allocated to Great Britain in 1934. Thus during this particular period a total of 225,098,000 pesos were transferred at the favored rate, of which the public utility companies remitted 1 4 1 , 3 3 2 , 0 0 0 pesos, while 73,418,000 were transferred for the servicing of Argentina's United Kingdom debts, and 1,796,000 and 8,552,000 pesos were allocated, respectively, as private remittances and 55 Ibid., p. 28. 56 On the contrary, the official British position with respect to Argentine exchange control was that "without it the [Argentine] Government could not ensure reciprocal exchange treatment with the United Kingdom." Department of Overseas Trade, " Report on the Economic, Commercial and Financial Conditions in the Argentine Republic," April 1936, p. 9.

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other transfers." This total amounts to £13,164,000, reckoned at the mean sterling selling rate for the year. The estimate of the Chamber is £2,336,000 above that allocated for financial services by the control authorities. It by no means follows, however, that the allocated figure may be used without qualification for balance of payments purposes. F o r ( 1 ) a considerable sum was remitted by way of the free market by holders of small and miscellaneous investments 58 and ( 2 ) allowance must be made for the (domestic) re-investment of earnings. Specific figures are unavailable on this score, but it is quite probable that the difference between the sum allocated and that estimated by the Chamber may even be exceeded when provision is made for these elements.59 Moreover, in view of the apparent desire to use the adverse balance of payments argument as a device with which to obtain further exchange concessions from Argentina, it is hardly likely that the British spokesmen would materially inflate this particular debit item. W e may therefore take the Chamber's estimate of 15,500,000 as substantially accurate. A s a second observation we may focus our attention upon the estimates given for freight, insurance, banking services, etc. The breakdown into the appropriate debit to be made in the case of Argentina's exports on the one hand and her receipts of manufactured goods and fuels on the other is suggestive. £10,600,000 is the figure given for the former, while £1,200,000 is taken to represent the charges for carrying that portion of Argentina's imports moving in British bottoms. It will be seen that this debit is proportionately much the larger in the 57 See the detailed statement of Finance Minister Ortiz, Monthly April 1936, p. 22.

Journal,

58 Even fresh accumulations of pesos by would-be remitters (at the official rate) were reported by Ambassador Chilton. Cf. The Times of Argentine, Sept. 17, 1934, p. 27. 59 It appears that the Chamber's debit for financial invisibles is reckoned in net terms, so that g r o s s capital imports from Britain in 1934 are duly taken into account. It may also be added that Argentina's invisible exports to Britain are negligible.

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case of the exports. 60 N o w in the light of the character of her exports, most of which consist of bulky grains and space-filling chilled beef, it is to be expected that the ratio of freight, insurance, etc. to f. o. b. value of the goods shipped will be higher than the ratio of freight, etc. to f. o. b. values of imports f r o m Britain. In this particular instance the f o r m e r ratio stands at 2 9 . 1 per cent 8 1 while the latter is but 8.3 per cent. Manifestly, it would be somewhat strange to learn that a sizable fraction of Argentina's imports f r o m Great Britain are of the bulky, low-value variety. Y e t this is precisely one important characteristic of Argentina's import trade; f o r coal and coke constitute a very significant part of the country's total imports. Moreover, since most of the coal is of British origin, this item would be expected to weigh heavily in the determination of the proportion of freight to f. o. b. value of imports of United K i n g d o m origin. But this is f a r f r o m apparent in terms of the 8.3 per cent freight absorption given in the Chambers' debit f o r this item. Either the magnitude of this debit in the case of Argentina's exports is overstated or the mode of calculating the freight (and etc.) bill f o r her imports markedly understates the size of this item, or a combination of the two is involved. T h e evidence appears to indicate that the incongruity is really one of understatement of the latter. 62 Perhaps the true figure f o r this item is nearer twice the sum mentioned in the balance of payments statement under review. I f so, the Chamber's unallocated balance is more than halved on this score alone. 60 If anything, the proportion of imports of British origin carried in British ships is somewhat greater than the proportion of Argentine exports to Great Britain carried under the same flag. 61 The c. i. f. value of Argentine exports is reduced to f. o. b. terms by deducting the estimated freight, etc. from the former. By this simple procedure the calculations with respect to exports and imports are made comparable. 62 Support for this contention may be had from The Economist's analysis of these invisible exports to Argentina. This source applies a 20 per cent figure indiscriminately to both exports and imports. See its Argentine Supplement, Dec. 5, 1936, p. I.

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In the third place, if the balance of payments argument is not to remain on a superficial level we must probe into the ultimate destination of that part of the sterling proceeds of Argentine exports which is deducted for the servicing of public external debt other than in the United Kingdom. In the main this is represented by Argentine dollar obligations, although some guilder, and Swiss and French franc issues also are outstanding. The Argentine Central Bank could clear up this matter in short order, but it has yet to make public any declarations on the subject. Private investment banking sources querried by the writer, however, place the British holdings of Argentine dollar bonds at approximately 50 per cent, a further small fraction of the same being held by Continental countries." Since American holdings of Argentine sterling and other foreign obligations are virtually non-existent, it follows that the British holdings cited must be reckoned in quasi-net terms. Taking $300,000,000 as the total of Argentine national, provincial and municipal long- and short-term dollar obligations outstanding in 1934, 64 and assuming that interest and amortization service may conservatively be estimated at 8 per cent, it follows that in the neighborhood of £2,500,000 may have reached British investors via the United States in this particular year. Again, British investments in Continental and American concerns operating in the Argentine—which on balance may be presumed to be net—constitute another important category which would be debited to Argentina in a complete statement of the balance of payments between the two countries. It would 63 Mr. L. D. Welch, manager of the Buenos Aires branch of the National City Bank of N e w York, is of the opinion that " not less than 40 per cent of the National bond service which goes to the United States finds its ultimate destination in England." Comments on Argentine Trade, Sept. 1936, p. 13. Commenting on Mr. Welch's statement, La Prensa affirmed that " this circumstance reduces to the ridiculous the London polemic regarding the significance of the unfavorable balance." Oct. 10, 1936. 64The total of Argentine dollar obligations was reduced from 324 million dollars in 1930 to 265 million in 1936. Cf. Comments on Argentine Trade, Nov. 1936, p. 21.

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seem that these roundabout claims on Argentina, in conjunction with the correction suggested in the preceding paragraph, much more than cancel the alleged credit balance of £2,200,000 in favor of Argentina. The decisive point, however, relates to an aspect of AngloArgentine commercial relations which has received far too meager attention in connection with the exchange control controversies of this period. There is perhaps only one commodity import with reference to which the Argentine authorities have never considered the applicability of two-way balancing. The commodity in question is jute for bagging, imported from India. In the absence of a return flow of River Plate produce, imports of this indispensable material represent a drain on Argentina's exchange resources, a drain which in effect constitutes a sizable addition to the debit side of Argentina's account with Britain. 65 F o r the exchange control authorities must grant sterling prior permits both for the jute itself and in payment of the carrying charges involved in its shipment.®8 A more or less comparable situation obtains with respect to Argentina's imports of specialized products from some of the British non-self-governing colonies. All in all, these transactions swell the debits for 1934 to the point where Britain actually realized a not insignificant favorable balance in its accounts with Argentina. T o conclude this part of the discussion, in the writer's view there is no doubt that if all of the meaningful data bearing on the Anglo-Argentine balance of payments for 1934 were available it would be relatively simple to show, con6 5 A r o u g h i d e a of t h i s d r a i n m a y be h a d f r o m t h e f a c t that the " tariff v a l u e " of j u t e i m p o r t s f r o m I n d i a in 1934 is 46,622,286 p e s o s , the r a t e ) e q u i v a l e n t of m o r e t h a n £3 million. Cf. Anuario,

A r g e n t i n e purchases f r o m E m p i r e sources other than the U n i t e d and Canada—chiefly

from colonial

sources—,

(buying

1936, p. 78. M o r e o v e r , Kingdom

representing virtually a

net

d r a i n o n t h e c o u n t r y ' s s t e r l i n g r e s o u r c e s , a m o u n t e d t o 73,620,750 p e s o s in 1934, o r a p p r o x i m a t e l y £5 m i l l i o n . S e e ibid., pp. 65-66. 6 6 T h i s s t a t e m e n t is of c o u r s e n o t strictly a c c u r a t e , but is s o w o r d e d t o b r i n g i n t o p r o m i n e n c e t h e u l t i m a t e destination of an i m p o r t a n t c a t e g o r y of Argentine foreign payments.

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trary to the rather vociferous assertions of British trade spokesmen, a balance adverse to A r g e n t i n a by at least the equivalent of the transfers required for the settlement of imports f r o m non-self-governing sections of the E m p i r e . T h e C h a m b e r ' s erroneous and misleading

balance-of-pay-

ments appraisal, published in 1 9 3 5 , turned out to be only the opening wedge in the series of pseudo-statistical

arguments

employed in the campaign for a revision of the R o c a agreement. Complaints of a more general nature, however, were also being pressed. T h e prior consideration of one of the more significant among them may be appropriate at this point. A f t e r winning a marked trade advantage in the f o r m of the 2 0 per cent exchange surcharge as a result of pressure brought to bear when free market appreciation had set in f r o m mid1 9 3 4 , British interests next devoted considerable attention to the terms on which earnings were remitted by the E n g l i s h owned railways. 8 7 Critics centered their remarks about the re67 Adequate treatment of this important matter would require analysis almost of the proportions of a monograph. Nothing less than a detailed history of the railways is called for, with special reference to the annual investment outlays and the average level of peso exchange at which they were effected, an appraisal of the monetary value of ancillary provisions of some of the original railway concession statutes, and unreported earnings over the years as a result of what informed Argentine sources consider to be the overvaluation of supplies and materials received from equipment concerns in Britain which are supposed to be very closely associated with the railway managements. W e shall have occasion to touch upon some of these matters presently. An experienced American observer, Mr. Eder, of the Bureau of Foreign and Domestic Commerce, compares British sales of railway equipment to Chile, where national ties in this regard are virtually non-existent and sales are distributed on price and quality terms, with those to railways in the Argentine. He finds that in the latter case, in sharp contrast to that with respect to Chile, the " British proportion of the rail and locomotive trade is almost precisely the same as her share in railway ownership," the British railways making their purchases in the United Kingdom " regardless of price or quality." He also found that the seven leading British roads, " operating 83 per cent of the total British-owned mileage, employ the same firm of consulting engineers in London." Op. cit., pp. 440, 442. The writer was supplied with comparable details by several engineers and business executives in Buenos Aires. It may be added in this connection that railroad materials have always been on a duty-free basis in the Argentine.

I32

ARGENTINE

EXCHANGE

CONTROL

lation between the exchange control margin profits and the inability of railways with peso earnings to show corresponding sterling entries on the credit side of their annual financial statements. Since the roads keep their accounts in sterling, so-called " exchange losses ", reckoned in terms of the difference between the old sterling parity and the government's official selling rate, have been used as another argument in favor of according further preferences. Although this is not a single problem— it is instead a rather important aspect of a set of related problems—the loss as so cavalierly calculated is quite vulnerable to criticism. In the first place, although the railway accounts are converted into sterling at the old peso parity, the downward adjustment of asset values has taken place only in the case of the current assets.88 This, however, has affected so small a part of the assets which in the light of the exchange factor in its historical setting require adjustments in their sterling value, that the " exchange loss " reckonings have not been perceptibly modified. Table 7, showing the findings of an official Argentine study of this problem, reveals the manner in which the exchange factor has cut into peso earnings, especially since TABLE 7 EXCHANGE

LOSSES

AND

THE

RETURNS

ARGENTINE

TO P R I V A T E L T

OWNED

RAILWAYS

(In thousands of pesos)

1928-29 1929-30 1930-31 1931-32 1932-33 1933-34 1934-35* Source : The Economist,

Gross Profits

Exchange Losses

Net Profits

Percentage Return on Capital

186.589 135,588 124,482 114,109 81,719 95,310 105,000

982 8,345 37,863 32,849 15,940 32,473 57,000

185,607 127,243 86,618 81,260 65.779 62,837 48,000

5.71 350 2.51 2.36 1.91 1.82 1.39

N o v . 2, 1935, p. 862.

* Provisional figures. The figures relate to all privately owned railways in Argentina, except the Midland and Transandine Railways. 68 The Economist,

Feb. 22, 1936, p. 423.

CONTROL

REGIME

OF

I 9 3 3

133

1932-33. But if deductions are to be made in local earnings whenever remittances are effected in depreciated pesos, by the same token adjustments of the reverse order are called f o r with respect to earnings in periods of substantial peso appreciation. There are two such periods. O n the one hand, of a total of 38,120 kilometers of railway trackage in the Argentine in 1930, 1 4 , 1 1 6 had been constructed by

1895. ββ Since local

Argentine expenditures on construction were relatively insensitive to movements in the value of the currency from 1867 to 1895, the marked appreciation of the peso during this period presented a condition more or less the reverse of that subsequent to 1929. Thus, it may be argued that adjustment of the sterling value of fixed assets is called for as a partial offset to the recent exchange losses. Similarly, account must be taken of the marked exchange profits obtained by the railways during the decline of sterling below peso parity from 1918 to 1920. In the second place, the capitalization base upon which losses are calculated is itself shaped in so high a degree by essentially extra-market factors that the rate of return on capital invested in the railways is deceptively unrelated to realized earnings in their multifarious forms. But this is a thesis the defense of which would take us far afield. Illustrative of the point at issue, however, is the famous Mitre L a w of 1907. According to the terms of this statute, whenever annual gross income for any three consecutive years exceeds 17 per cent of the railway's capital as recognized by the Executive Power, providing the company's operating expenses do not exceed 60 per cent of the gross income, the Executive Power is authorized to intervene for the purpose of reducing passenger and freight rates by an amount sufficient to keep gross income at or below the 17 per 6 9 Cf. Estadística Aires,

de ¡os Ferrocarriles

1536), M i n i s t e r i o d e O b r a s

en Exploración,

Vol. X L I I I (Buenos

Públicas, Dirreción General

de

Ferro-

carriles, pp. 322-325. In the c a s e of the B u e n o s A i r e s G r e a t S o u t h e r n R a i l w a y , the l a r g e s t unit, o n e - t h i r d of t h e 1930 t r a c k a g e w a s in o p e r a t i o n b y 1900. Cj. Historia

del Ferrocarril

Sud

( B u e n o s A i r e s , 1937), pp. 338, 667.

134

ARGENTINE

EXCHANGE

CONTROL

cent level. ( W h e n e v e r the 6 0 per cent expenditure level happens to be e x c e e d e d a n d d e m o n s t r a t i o n o f such is m a d e t o the s a t i s f a c t i o n o f the E x e c u t i v e , the latter is e m p o w e r e d t o raise the 1 7 per cent g r o s s i n c o m e limit by a proportionate a m o u n t . ) G i v e n the 6 0 per cent m a x i m u m o p e r a t i n g e x p e n d i t u r e

pro-

vision, the 1 7 per cent g r o s s return reduces to 10.2 per cent ( 6 0 per cent o f 1 7 ) a s costs, l e a v i n g 6.8 per cent as the m a x i m u m a n n u a l net income w h i c h m i g h t be earned f o r a n y three c o n s e c u t i v e y e a r s w i t h o u t penalty o f rate reductions. 7 0 A r g e n tine students o f r a i l w a y e c o n o m i c s w i l l tell y o u that the r a i l w a y executives

from

time to t i m e took

good

advantage o f

the

several p r o v i s i o n s o f the M i t r e L a w to keep nominal returns s a f e l y w i t h i n the m a x i m u m limit. I n those cases in w h i c h it w a s considered

that

a three-year

average

annual

net return

on

capital w o u l d e x c e e d 6.8 per cent, the r a i l w a y s w o u l d invariably u n d e r t a k e v a r i o u s types o f construction activity by i n c u r r i n g service a n d equipment costs b e s t o w i n g sizable net benefits upon c o n c e r n s h a v i n g direct a n d indirect h o l d i n g s in the roads themselves. O n e w i l l seek in v a i n , h o w e v e r , to find considerations o f this sort in the accounts o f the doubtless important " e x c h a n g e losses " that h a v e f e a t u r e d so prominently since 1930. T h u s , t a k i n g u p the c u d g e l s o f i n v e s t o r interests, the British C h a m b e r r e m a r k e d that " if the service o f the public debt can be m a d e a t the rate o f 1 5 pesos t o the pound [i. e., the official b u y i n g r a t e ] , a n e q u i v a l e n t c o n s i d e r a t i o n m i g h t well be s h o w n to the holder o f r a i l w a y securities. T h e r e is a g r o w i n g opinion that the r e n e w a l o f the R o c a a g r e e m e n t m a y be tied up v e r y closely w i t h the r a i l w a y p o s i t i o n . "

71

S i m i l a r l y , it w a s held that the

e x c h a n g e m a r g i n placed the holders o f A r g e n t i n e g o v e r n m e n t bonds in a p r i v i l e g e d position as compared w i t h investors in public utility concerns, a l t h o u g h it apparently did not occur to 70 Cf. Leyes Nacionales, Vol. 14, First Part (Buenos Aires, 1918), pp. 390 ff. 71 Monthly Journal, N o v . 1935, p. 13.

CONTROL

REGIME

OF

1933

135

these spokesmen that the alleged privilege might be quite illusory if consideration is given to the terms on which investors acquired the respective securities, or that f o r the same reason a probably not inconsiderable body of railway shareholders might be placed in a privileged position relative to the holder of government bonds if the Argentine authorities decided to sanction the desired 1 5 rate. Finally, it was asserted in the same vein that the Argentine exchange control " system operates in a sense of confiscation of part of the return due to the British investor on his capital investment." 72 On the other hand, at about the same time Argentine sources pointed out that recent improvements in the facilities for carrying meat from the Dominions together with the latter's more rapid rate of increase of purchases from Great Britain meant that the matter of further concessions should not long be delayed." Doubtless as a result of these circumstances, the Minister of Finance announced, at the height of the negotiations for the renewal of the Roca accord, that in exchange for a 1 0 per cent reduction in freight rates on corn the Argentine government was willing to permit the railways to remit earnings at 15.75 instead of 1 7 pesos to the pound for the year 1936. 74 In no case could remittances at the new rate exceed the sum transferred on the same account in 1935. It was estimated that with respect to the four largest roads the freightrate reduction would mean a revenue loss of about 3,500,000 pesos during 1936, but that the net gain at the new low 15.75 rate of exchange would be in the neighborhood of 13,000,000 72 Ibid., Dee. 193s, p. 17. 73 See the remarks of Sr. J. Dodero, Chairman of the Argentine Chamber of Commerce in London, in La Nación, July 22, 1935. 74 Corn was singled out for the freight reduction owing to the fact that the authorities, being opposed to the demands of corn farmers for the establishment of a new and higher guaranteed basic price, found that they could avoid a corn subsidy drain on the exchange profits by means of this alternative move. Cf. The Economist, Feb. 22, 1936, p. 422.

I36

ARGENTINE

EXCHANGE

CONTROL

pesos." When all of the British railways in the Argentine are considered it is likely that the value of the exchange-rate concession would reach almost twice the latter figure. Perhaps of commensurate importance, however, especially at this stage of the negotiations, were the prospects of broadening the scope of assistance to the railways as a result of the initial concession just mentioned. In any event, it should be noted that the concerted campaign f o r the alleviation of the remittance difficulties of the carriers did not require an extensive period in which to bear the desired fruit. Returning to the elusive balance of payments issue, already discussed in some detail with regard to the statement presented by the British Chamber of Commerce, it was highly significant that renewed pressure of this sort now emanated both f r o m Embassy officials and committees of the House of Commons. Contemporaneously rumors reached Argentina to the effect that the British authorities contemplated levying a per pound duty on non-Empire chilled beef in substitution of the 1 9 3 3 quotas. 78 N o one doubted the efficacy of such prospects in upsetting the bargaining balance in f a v o r of the buyer. And the combination of meat duties together with the probability of further exchange preferences would not be likely to improve the Argentine side of the accounts with Britain. X o r , in consequence, was it likely that objections attributing a favorable balance of payments to Argentina would be regarded as cavalierly as theretofore. Nevertheless we find that some of the best informed spokesmen continued this line of attack. Thus the Commercial Counselor to the British Embassy, Mr. S. G. Irving, who was also the British representative in the exchange control administration and therefore the one official who could not be admitted to court on the grounds that he lacked access to official and complete information, made the following rather startling remarks in a speech delivered in the presence of the 75 Ibid., Feb. 22, 1936, p. 422, and March 7, 1936, p. 525. 76 The Times of Argentina,

April 13, 1936, p. 10.

CONTROL

REGIME

OF

I933

I37

Argentine Minister of Agriculture, Dr. Cárcano. " There are still some months before the present Convention terminates . . . and I will just make one comment : that while it has served the useful purpose of tiding over a difficult period and has taken us some distance towards a balancing of accounts, there is still substantial leeway to be made up before it can be shown that full reciprocity has been reached: there is still an unsatisfied margin that puts us in the position of appearing ungrateful for what has been done because we are in duty bound to ask for more: and if I add that on the whole we have not been specially favored or shown preference, it is with an eye to the wide difference originally separating us,77 which both countries have agreed should be adjusted. The term ' preference ', in view of our general position vis-a-vis this country, is really a misnomer, any so-called preference merely being a means of reducing our deficit in the reciprocity account. Every step that the Argentine Government takes in that direction is none the less—perhaps I should say all the more— welcome, and I am glad to say publicly in the presence of the Minister of Agriculture that we do appreciate the motives and recognize the value of such measures as the 20 per cent exchange surcharge and the railway exchange concession as definite contributions toward that complete settlement which is our ultimate aim." ™ It is difficult to imagine a more ingratiating yet misleading and inaccurate statement of so important a controversial matter. Why, it may be queried, was it necessary to state in the presence of the Minister that " on the whole Britain has not been specially favored or shown preference " ? This expression clearly was designed for the consumption of groups adversely 77 The reference appears to be to the period 1920-30, when it w a s rather general to find the United States ranking at the top of suppliers of Argentine imports. 7S Monthly

Journal,

April 1936, pp. 23-24.

138

ARGENTINE

affected b y

exchange

EXCHANGE

discrimination,

CONTROL

no

representatives

of

w h i c h w e r e present in the audience to w h o m the speaker addressed his remarks. T h e sole point which the speaker wished to g e t across to his audience is no less clear: A s he put it, Argentina

should

use the necessary

means

for

" reducing

Britain's deficit in the reciprocity account." T h a t is to say, it w a s asserted that the balance of payments was still adverse to G r e a t Britain. In the light o f our analysis of the alleged adverse balance of payments in the year 1934, it requires n o extensive comment

to point out that a convincing statement of

the

speaker's position will depend on a g o o d deal more than the utterance o f seemingly innocuous generalities. B u t a f t e r all the C o m m e r c i a l Counselor's remarks, aside f r o m the e x a g g e r a t i o n involved, m a y be regarded as a by-product o f the troublesome fence-straddling which characterized A r g e n tina's e x c h a n g e discrimination at this particular period. O n the other hand, it is easy to sympathize with the A r g e n t i n e authorities in the face of recurrent exaggerated pronouncements coming

from

responsible

organizations

and groups

in

the

B r i t i s h Isles. T h e s e were precisely the sections of opinion which were at the same time best informed and in the very favorable position o f being able to capitalize on the combination of special i n f o r m a t i o n and the strongest bargaining position

vis-a-vis

A r g e n t i n a . Illustrative of such pronouncements is the case of one emanating f r o m a committee of the House of C o m m o n s , an utterance so unjustifiably at variance with the facts of the situation as well as the statements of British officials themselves that F i n a n c e Minister O r t i z found it necessary to have recourse to a repudiation o f the allegations. P r e f a c i n g his remarks 79 Monthly

Journal,

April 1936, p. 27. Cf. also The Economist,

78

May 16,

1936, p. 364. T h e exaggerations of the Parliamentary committee appear more sensible as remarks designed to counteract claims growing out of the United States' adverse trade balance with Argentina for the second successive year. W i t h respect to the latter, see Comments

on Argentine

Trade, Sept. 1936.

CONTROL

REGIME

OF

I933

139

with the statement that the British Government had for some time been fully informed of the Argentine Government's position and that no complaints of importance had been lodged with the local authorities, he went on to say : " But the announcement which appeared yesterday, according to which a committee representing the Parliamentary majority of

the

House of Commons affirms that ' Argentina ought to reduce in a radical manner her purchases of North American

[United

States] goods which, according to what is said, are paid for by means of pounds sterling deriving from British purchases of Argentine merchandise' and that our country ' employs only 25 per cent of the exchange which it has in sterling to purchase British merchandise and meet services, whereas 75 per cent is spent, so it is alleged, abroad, principally in the United States,' obliges the Ministry of Finance to make public immediately the following information, which demonstrates that such affirmations are totally inaccurate. Our Government, in this as in all the engagements it has contracted, has fully honoured

its

signature." T h e statistical information constituting the demonstration in question, a part of which has already been referred to, was of course divulged as much to convince some of the British of the magnitude of the preference which they enjoy in the Argentine market as to refute the patently absurd allegations of the Parliamentary majority. Table 8, showing for the years !933

t0

1935 the peso proceeds of Argentina's " regular " ex-

ports to Britain, the sum set aside for the servicing of Argentina's non-sterling foreign obligations, and the total exchange transferred to Britain in each of the years, speaks for itself. A t the close of 1935, it will be noted, Argentina could point to its strict fulfillment of Article 2 of the Roca pact; the balances in favor of Britain for 1933 and 1934 represent prior permit applications accepted in these years for which actual transfers had not been consummated. The share of official exchange al-

I40

ARGENTINE

EXCHANGE

CONTROL

located to Britain by remittance categories, shown in Tables 9 and 10, is rather revealing. Since the establishment of exchange allocation according to the provisions of Article 2 of the Roca-Runciman agreement, the share of the total of official exchange going to the favored country increased by almost 18 per cent, or from 33.7 to 39.7 per cent. One outstanding feature is the steady improvement in the treatment accorded imports of merchandise, both the absolute amount and the relative share showing annual increases. Perhaps the slight decline in the rate of growth of the relative share for this category in 1935 as compared with 1934 is traceable in large measure to the free market appreciation which effectively reduced the exchange advantage until Argentina imposed the 20 per cent surcharge. A s was pointed out in our discussion of the errors in the Chamber's balance of payments statement, it should not be inferred from the figures just given—which relate exclusively to the allocation of official exchange—that meaningful conclusions may be drawn concerning the balancing of AngloArgentine accounts. Nothing has been presented to weaken in the slightest the results of our analysis of the balance of payments for 1934. It will be recalled that the Chamber's statement succeeded in showing a balance adverse to Britain simply because several important debits had been omitted. Similarly, Tables 8 and 9 understate the transfers to the United Kingdom by reason of the fact that the allocation figures relate exclusively to imports of British origin, when it is well known that Argentine purchases of jute from India and several basic materials from other British colonies are covered in sterline by prior exchange permits. Again, the data presented by the Finance Minister appear to indicate that sums allocated for debt service in countries other than the United Kingdom constitute a net deduction from the official exchange effectively transferred to the latter. W e have seen that perhaps half of these sums are transferred to Britain in but a roundabout

CONTROL

R E G I M E OF

1933

I4I

manner. Finally, no less applicable in the present instance are the remarks concerning the free market transfers that were made in our analysis of the 1934 balance-of-payments statement. TABLE 8 OFFICIAL EXCHANGE ALLOCATI» TO THE UNITED KINGDOM, M A T 1 9 3 3 ΤΟ DECEMBER 1 9 3 5

(In thousands of pesos) 1933

1934

1935

273,235

543,572

493,760

Exchange allocated : Reserve for debt service in other countries

25,622

45,000

45.000

Transferred to Great Britain

236,355

462,371

444.377

261,977

507,371

489,377 4,383

Exchange available: V a l u e of r e g u l a r e x p o r t s

Total allocated Balance in favor of Great Britain

(May to Dec.)

13,500

36,201

Accorded for permita granted in 1934

10,515

—

Accorded for permits granted in 1935

795

20,268

—

2,190

15,933

—

Balance pending at date

— •

Source: Tables 8, 9, 10 and 11: Monthly Journal, April 1936, pp. 22 and 28.

A final set of calculations submitted by Minister Ortiz reveals how utterly unfounded were the protestations o f the committee of the House of Commons. (See Table n ) .

The

purpose for which Ortiz provided these data was to " show the benefit obtained by British exporters through the application of the Roca agreement." There is no doubt that Table 11 shows just this particular thing, but it is difficult to understand why Table i o was considered insufficient for this purpose. F o r the purposes of this study, on the other hand, Table 11 provides us with one important bit of additional information. It will be

142

ARGENTINE

EXCHANGE

CONTROL

TABLE 9 OFFICIAL EXCHANGE ALLOCATED TO THE UNITED KINGDOM BY CATEGORIES, 1933-1935

(In thousands of pesos, at official buying rate)

Imports of merchandise Public utility remittances Public debt Private remittance a Other transfers (including official Argentine Government expenses abroad)

1933

1934

1935

115,220

247.780

278.976

55,597

141.332

138,074

74,371

73.418

42,980

11,553

1.796

7,518

8,552

(May to Dec.)

4,307

Source: See Table 8. • Category discontinued after 1934.

TABLE

10

SHARE OF OFFICIAL EXCHANGE ALLOCATED TO THE UNITED KINGDOM, 1933-1935

(Percentage of total for all countries) 1933

1934

1935

Imports of merchandise Public utility remittances Public debt Private remittances Other transfers

32.7

33.9

34.5

37.1

79.8

76.2

42.3

39.6

27.7»

20.6

6.9

18.3

19.9

18.0

All items

33.7

40.7

39.7

(May to Dec.)

—

Source: See Table 8. a Reduction due to interest savings from 1934 refunding loans. Inspection of Tables 8 and 9 reveals that the former is not completely consistent in all its parts, since the total allocated for 1935 plus the balance remaining at the end of this period does not exceed the quantity available by the balance pending at the end of 1934, as seems to be called for. Nor do the annual totals shown in Table 9 jibe with the appropriate values in Table 8. In default of access to the basic data from which the tables were derived, we shall have to assume that the inconsistencies noted are of minor importance.

CONTROL R E G I M E OF I 9 3 3

143

noted that the official exchange sold for the payment of merchandise imports is given in Table II as 813,432,000 pesos f o r the period in question. According to Table 9 the total of official exchange allocated f o r the payment of merchandise imports of TABLE

11

I M P O R T S AND OFFICIAL E X C H A N G E SOLD FOR THEIR MAT

1 9 3 3 ΤΟ D E C E M B E R

PAYMENT,

1935

(In thousands of pesos) A. United

Kingdom·.

Imports (real values") Exchange bsold for payment of merchandise imports

794,956 813,432

Percentage of exchange sold for payment of imports to imports

102.32

B. Other Countries: Imports (real values ») 2,387,107 Exchange bsold for payment of merchandise imports 1,647,342 Percentage of exchange sold for payment of imports to imports 69.01 C.

Total: Imports (real values ») 3,182,063 Exchange bsold for payment of merchandise imports 2,460,744 Percentage of exchange sold for payment of imports to imports 77.33

•Argentina's import statistics are divided into two types: Tariff values and Real values. The former are ascertained by the application of unit values fixed by statute to goods passing through the customs, while the latter are Tariff values corrected by the application of varying price indices to sub-groups of tariff classifications. b

" At the actual rate of (official) exchange of each operation."

Source: See Table 8. United K i n g d o m origin is but 641,976,000 pesos, or 171,456,000 pesos less than that shown in Table 11. Even if we allow f o r the reckoning of the former at the selling and the latter at the buying rate, the difference exceeds the exchange m a r g i n by almost 100 per cent. Is it possible that, in his anxiety to

144

ARGENTINE

EXCHANGE

CONTROL

refute the committee of the House of Commons in the shortest possible time 80 as well as in the most convincing of terms, the Finance Minister more or less inadvertently divulged the total of official sterling exchange sold for commodity imports from the sterling payment area? A s to the discrepancy between the ratio of the " real value " of imports from the United Kingdom to the " r e a l v a l u e " of total imports (25 per cent) and the mean annual allocation of official exchange for merchandise imports given in Table 1 0 (33.7 per cent), a discrepancy which is of the order of 35 per cent, this is accounted for largely by the fact that the share in total imports differs from the share of official exchange by reason of the inclusion in the former of both official and free market transactions. Part of this difference, however, is no doubt traceable to inaccuracies inherent in the valuation of imports in " real value " terms. 81 There is one more observation in connection with Table 1 1 . The 69 per cent official exchange coverage announced as applying to other countries than the United Kingdom can by no stretch of the imagination be used without qualification with reference to individual countries selected, so to speak, at random. A s an average figure, it is really very heavily weighted by allocations to nations in the preferred group, such as Germany, the Nether80 From the statement of the Finance Minister quoted above, pp. 138-139, it would appear that the refutation was made public the very next day. Although data of this sort are doubtless kept up to date in fairly orderly form, it may be that in this instance compilations were made with unusual haste. 81 " Real value " figures are the most accurate import figures made public in the Argentine (the control authorities have complete invoice figures, however), and with respect to the totality of imports during (say) a given year they may be taken as substantially accurate. In the case of imports from a specific country, however, this is not quite so. For since the quality-distribution of imports from individual sources is seldom identical with the over-all distribution, it is often true that the average value of imports of specific items and therefore also the total of imports from the country in question depart in some measure from the average value of the imported items from all sources. The indices used to correct " tariff values " in order to obtain so-called " real values " are based on these general averages or " aforos." For example, " real value " figures overstate the value of textile imports from Japan, for the reason that the latter are principally in the cheaper grades.

C O N T R O L R E G I M E OF

1933

H5

lands, Belgium, Switzerland, Denmark, etc., almost all of the imports from which are covered in the official exchange market. Although official exchange allocations for imports from the United States have not been made public, it is doubtful if the coverage exceeded 50 per cent in the period under review. Turning now to the attitude of some sëctions of Argentine opinion toward the issues involved in the renewal of the 1933 agreement, we find that skepticism with reference to the trend of British demands under the agreement also became more crystallized after the imposition of the 20 per cent exchange surcharge on goods originating in countries with whom Argentina's trade balance was unfavorable. This unfavorable balance criterion really proved to be no less elastic than many another rubric according to which Argentine officials had promised to mete out equitable treatment to importers from different national origins. For by the time the surcharge went into effect the trade balance with the United States, owing to what were admittedly unusual (drought) circumstances, had turned from its more or less regular unfavorable to a markedly favorable state. American business interests, cognizant of the real as opposed to the announced reason for the 1935 surcharge, were by no means anticipating immunity from the 20 per cent differential now that the United States-Argentine trade balance had become favorable to the latter ; but they had hoped that at least their share of official exchange would rise roughly in proportion to the increase in dollar exchange created by greater exports to the United States. Since disappointment on this score had been publicly expressed by American trade interests,8 % La Prensa,83 in an editorial significantly entitled " We indispose ourselves with the United States without satisfying Great 82 Cf. the Sixteenth Annual Report of the United States Chamber of Commerce in the Argentine, Comments on Argentine Trade, Sept. 1937. 83 May 13, 1935. This organ also pointed out that although it considered United States treatment of Argentine chilled beef and linseed to be unjust, such treatment is identical as between countries and therefore cannot be regarded as discriminatory.

146

ARGENTINE EXCHANGE

CONTROL

B r i t a i n , " prevailed upon those enlightened sections o f A r g e n t i n e opinion

to

Argentine

consider

the

commercial

necessity

relations.

of

re-examining

Reiterating

the

Anglo-

fact

that

B r i t a i n receives decidedly p r e f e r e n t i a l t r e a t m e n t in the A r g e n tine i m p o r t trade besides b u r d e n i n g the T r e a s u r y w i t h h i g h e r public w o r k s outlays t h r o u g h p r e f e r e n c e g r a n t e d in the placing o f g o v e r n m e n t contracts, it asked w h e t h e r it w a s w o r t h w h i l e countenancing

commercial

relations o n the R o c a pattern

in

v i e w o f the constant e x p r e s s i o n s o f d i s s a t i s f a c t i o n e m a n a t i n g f r o m B r i t i s h spokesmen as well as the g r a n t i n g o f substantial D o m i n i o n p r e f e r e n c e to the p r e j u d i c e o f A r g e n t i n a . " A r g e n tina sacrifices all in f a v o r o f E n g l i s h g o o d s w h i l e E n g l a n d does not hesitate in sacrificing A r g e n t i n a ' s e x p o r t s . " W i t h the inception of r e n e w a l n e g o t i a t i o n s in L o n d o n in the s p r i n g o f 1936, A r g e n t i n a w a s under considerable pressure t o meet B r i t a i n on her terms if there w a s to be a n y reduction in the contemplated chilled beef duty o f

d per pound. S i n c e so

m u c h h a d been made in L o n d o n circles o f the alleged r e g u l a r a d v e r s e balance o f payments, it w a s insisted b y B u e n o s A i r e s o b s e r v e r s that the one t h i n g m o s t u r g e n t l y needed f o r clear t h i n k i n g w a s an u n a m b i g u o u s statement o f t h e A n g l o - A r g e n tine balance o f payments in recent years. 8 4 I t w a s r e m a r k e d in this connection that the p a y m e n t s balance w a s

favorable

to

B r i t a i n in 1932 to the e x t e n t of some 40,000,000 pesos, w h i l e t h a t f o r 1 9 3 3 w a s a p p r o x i m a t e l y even. 8 5 W e h a v e seen that the balance o f p a y m e n t s f o r 1 9 3 4 w a s definitely a d v e r s e t o A r g e n t i n a . C o n t e n d i n g that the large a d v e r s e trade balance in n o w a y justifies hasty estimates designed to s h o w that the paym e n t s balance w a s smaller but still on the same side o f

the

ledger, it w a s also pointed out that it w a s rather s t r a n g e t o find B r i t a i n so relentlessly h a m m e r i n g on the m a t t e r o f its " un84 La Prensa, April 11, 1936. 85 Ibid. The writer does not know how comprehensive a statistical basis underlies La Prensa's figure. For example, there is nothing in the text of the reference cited to reveal that purchases from non-self-governing colonies must be regarded as British re-exports for Argentine balance of payments purposes.

CONTROL

REGIME

OF

1933

47

I

favorable balance " vis-a-vis the Argentine while it was contrastingly silent on the very same state of affairs relative to other countries, notably the United States. 8 " Argentine critics of the Roca agreement also envisaged a rather ominous parallel between the proliferation of discriminatory preferences to Britain 87 and Australia's costly experience with basically similar discrimination against Japan and the United States. We have already mentioned that the retaliation against Australia assumed the form of a cessation of wool purchases by Japan and the withdrawal by the United States of most-favored-nation treatment. As a matter of fact, the denial of most-favored-nation treatment to Argentina had been endorsed by not unimportant organizations following the imposition of the exchange surcharge.88 There is no doubt, therefore, that the Argentine authorities had to include possibilities of this sort in any reckoning of the consequences likely to result from engagements now under consideration in London. Finally, the critics, most of whose arguments as usual found public expression in the pages of La Prensa, were not undisturbed by the announced shift from restriction by means of quotas to quotas supplemented by duties on meat uniform as between non-Empire sources. Did this mean that (e. g.) Brazil (a very recent exporter of chilled beef) and Uruguay would be subject to the same duty conditions as Argentina in the British meat trade? 8 8 I f so, it was stated that Argentina's 86 Ibid., April 27, 1936. This journal did not show cognizance of the nature of the American balance vis-a-vis Britain and her colonies. 87 The extension of some of these preferences to other treaty countries through most-favored-nation treatment is really merely a derivative of the basic concessions thought necessary for the maintenance of the United Kingdom market. See above, pp. 93 and 118, note 42. 88 Had it not been for our Good Neighbor Policy and the preparation then under way for the consideration of a reciprocal trade treaty with Argentina, it is not unlikely that the United States would have taken such steps. 89 L a Prensa, July 7, 1936.

I48

ARGENTINE

EXCHANGE

CONTROL

grant of preferences would be " in exchange for practically nothing." Although this was an obvious exaggeration for the reason that the meat trade of the two neighboring countries is dwarfed by that of the Argentine, the likelihood of what was referred to as " common treatment " was regarded with extreme displeasure in Buenos Aires when the authorities were apprised of the duty terms of the provisional Anglo-Brazilian trade agreement. 80 These terms, of which the principal item was the Y^d duty on chilled beef, were but a reproduction of those announced as about to apply to imports from the Argentine. The reduction from 1 was not really surprising in view of the margin known to have been present for bargaining purposes. Nevertheless, since this " common treatment " was looked upon as anything but the appropriate quid pro quo for Argentina's grant of " exceptional concessions," the nature of the reaction of those following the London negotiations may readily be surmised. Meanwhile the negotiations, somewhat expectedly in the light of what has been related above, were proceeding in a noticeably unsatisfactory manner. Since the Roca-Runciman agreement of 1933 was terminable by either party at any time after November 7, 1936, given six months notice, the difficulties encountered in the negotiations were such that the 1933 accord was several times on the verge of being formally denounced. Britain finally gave notice of such intentions on August 7. 9 1 The two governments agreed, however, to reduce the period of notice to three months—a step taken in the hope of expediting a reconsideration of the terms on which the parties might reach a workable agreement—so that the Roca pact would be formally terminated on November 7, 1936. It was not long before negotiations were actively resumed, mainly upon Argentine initiative, with the result that Argentina finally 02 agreed on 90 Ibid., August 14, 1936. 91 The Economist, Aug. 15, 1936, p. 299. 92 La Prensa deplored the fact that a treaty running for but three years required negotiations extending for one and a half years. Nov. 27, 1936.

CONTROL

December

REGIME

OF

I933

I49

1 to the extension f o r another three y e a r s o f

a

considerably harsher pact. 1 " 5.

RECAPITULATION

L e t us n o w attempt to piece together in summary

fashion

the various threads composing the fabric of this chapter. W i t h Minister Pinedo's decrees of N o v e m b e r 1933 as the basis f o r the new control scheme, there resulted a depreciation o f the currency to the extent o f some 26 per cent, the establishment of a lucrative margin between the government's buying and selling rates of exchange, and, finally, the inauguration of a separate free exchange market. T h e exchange margin, originally signed

f o r the dual purpose of

providing the funds

defrom

which ( ι ) the government could subsidize the cereal producers and

(2)

the T r e a s u r y could offset the augmented

overseas

debt burden traceable to the lower value of the peso, w a s shortly devoted to a variety of uses as circumstances dictated.

The

cereal producers were to be assisted by a newly created G r a i n R e g u l a t i n g Board. Since the latter's losses were only nominal in the period covered in this chapter, its activity involved no significant drain upon the exchange profits fund. T h e e x c h a n g e burden of servicing the external public debt, however, w a s o f some importance. Y e t both of

these charges absorbed

only

about one-third of the exchange margin earnings d u r i n g the first year. W e also saw that the 1933 scheme permitted an ad hoc differential treatment of A r g e n t i n e exports on the basis of ( 1 ) the regularity o f their movement in the export trade 93 The Economist's comments on the n e w agreement may be of interest : "Argentina has made further concessions, both in enlarging the A r g e n t i n e market for British g o o d s and in assenting to a contraction of the British market for Argentine products, in return for another three years' security for the rest of her market. A s w e ventured t o predict last week, Mr. Runciman has driven an even harder bargain in 1936 than in 1933. . . . W e are moved to inquire whether, at every three-year period, another ounce of flesh is to be exacted from A r g e n t i n a . . . is it really w i s e to drive an ever harder bargain with a country than w h o m w e have no better customer anywhere i n the world? " Dec. 5, 1936, p. 460.

150

ARGENTINE

EXCHANGE

CONTROL

and ( 2 ) the country of destination. A l t h o u g h the officials held that such treatment could not be defined as subsidization, it w a s pointed out that there could be n o denial of the subsidy character of

the exchange-rate

differential f a v o r i n g

certain

export products. W i t h respect to the matter of trade discrimination, the 1933 control set-up operated rather effectively in diverting A r g e n tine imports to favored countries, notably Great Britain, at least as long as a sizable g a p existed between the official selling rate (applying to privileged imports) and the free market rate (applicable to goods of other o r i g i n s ) . W h e r e a s practically the totality of imports f r o m Britain received official exchange, not more than half of those of U n i t e d States origin were covered in this manner. T h e n a r r o w i n g of the gap referred to in the recovery that followed a f t e r 1933 so jeopardized the f a v o r e d positions previously obtaining that the authorities

found

it

necessary, in A p r i l 1935, to restore the original m a r g i n by means of an arbitrary 20 per cent exchange surcharge

ap-

plicable only to nonprivileged imports. It w a s also shown that the government's fear o f balance-of-payments disequilibrium as a result of appreciation in the free exchange market, in view of its arbitrarily delimited f r a m e of reference, constituted little more than a specious defense of its action. W e considered n e x t the series o f events, analyses and controversies leading up to the revision of the original

Roca-

R u n c i m a n treaty. British spokesmen insisted in one f o r m or another, in terms of mere trade balances and also in the significant f o r m of over-all balance-of-payments

figures,

that the

accounts between the t w o countries were regularly adverse to Britain. In challenging the 1934 balance of payments in defense o f their position, it w a s shown, in part with the aid o f data published by the control authorities themselves, that the claim w a s untenable. Several important categories were not given explicit treatment at all, while others involved over- or understatement in v a r y i n g degree. A s a result the alleged adverse balance was shown to have actually been favorable to Britain

CONTROL

REGIME

OF

I933

I5I

in the year in question. Finally, after throwing some light on the positions of both parties at the London negotiations f o r the revision of the Roca agreement, and the delays and interruptions in the parleys, it was revealed that the whittling down of the half loaf of 1 9 3 3 still left a treaty residuum which was regarded by the guiding interests in the Argentine as preferable to any alternative open to them. W e shall turn in the chapter which follows to the nature of this residuum, the revised R o c a pact of 1936.

CHAPTER V T H E R E V I S E D ROCA-RUNCIMAN TREATY OF 1936 DURING the early stages of the negotiations for the renewal of the 1933 trade pact La Prensa informed its readers that in terms of the Republic's interests there were but two important matters involved in the proceedings. First, there was the question of the nature of Argentina's attitude toward the new and more stringent restrictions on the entrance of its meat products into the United Kingdom market. In addition, there was the matter of the delegates' reaction to the expected extensive demands to be made upon them in regard to the future treatment of British capital in the Argentine. This dichotomy may serve the useful purpose of enabling us to classify the larger aspects of the content of the present chapter. Ι.

THE

TREATMENT

OF A R G E N T I N E

MEAT

With respect to the first question, it was pointed out in the previous chapter that in spite of the opposition at home to the terms on which the country was offered a revision of the 1933 accord, the delegation in London finally consented to another three-year agreement which would at least salvage a considerable portion of its precarious and duty-laden chilled beef market—Argentina's principal worry—as well as provide partial safeguards for a few of the Republic's agricultural exports. Formal emphasis upon the agricultural side of the export trade did not, however, involve engagements different from those stipulated in the original Roca pact ; its inclusion seems to stem principally from the attempt to convey the impression of broadness of scope of the British " concessions " and thus to mitigate the unfavorable reaction in Argentina to further limitations upon the virtually policy-determining meat trade. Thus, in contrast to the 1933 provision in which the United Kingdom affirmed its full recognition of the importance of 152

ROCA-RUNCIMAN

TREATY

OF

I 9 3 6

153

the chilled beef industry in the economic life of the Republic, the agreement signed in 1936 opens with the statement that the United Kingdom " fully recognizes the importance of the agricultural-livestock (agropecuaria) industry in the economic life of the Argentine republic." The purely formal character of this shift is indicated, however, by the fact that the balance of the article in question relates exclusively to details of the treatment to be accorded meat of Argentine origin. Articles 2 and 3 simply extend the 1933 provisions regarding mostfavored-nation treatment to the agricultural section of the export trade. The details of the provisions relating to Argentine meat are set forth schematically in the tabular form presented below. It will be recalled that the 1933 agreement limited Argentine chilled beef shipments by quota to 90 per cent of the United Kingdom receipts from this source in the depression year of 1932. 1 The new accord, besides taking as the base period the year (1935) of lowest export volume in this category during the currency of the original Roca pact,2 further reduced imports of chilled beef by 6,935 short tons annually. A limit to possible additional cuts during the three-year period was also included in the form of an assurance that the 1939 quota on chilled beef would in no case be reduced below 329,500 tons. Britain might therefore reduce Argentine receipts by some 60,000 tons below the 1934-36 average. This was in effect a reserve power useful for the purpose of possibly necessary trade bargaining during the treaty period. In this connection it may be pointed out that Article 1 established a convenient basis with respect to the execution of any such informal bar1 T h i s w a s a p p r o x i m a t e l y 370,000 m e t r i c t o n s , a s s u m i n g 98.6 per c e n t of A r g e n t i n e c h i l l e d beef w e n t to B r i t a i n as in the p e r i o d 1934-36. Cf. Review,

O c t . - D e c . 1934, p. 167.

2 T h e e x p o r t s of chilled beef f o r the t h r e e y e a r s w e r e a s f o l l o w s : 1934

358,353 metric

1935

353,847

"

1936

363,890

"

S e e ibid., S e r i e s I I , V o l . I, N o . 1 (1937), p. 47.

tons

Economic

154

ARGENTINE

EXCHANGE

CONTROL

TABLE 12 A R G E N T I N E M E A T QUOTAS UNDER T H E REVISED ROCA AGREEMENT OF 1 9 3 6 , AND T H E RELATIVE IMPORTANCE OF T H E B R I T I S H M A R K E T BY CATEGORIES OF M E A T EXPORTS

a

S g o

a S Chilled beef

Frozen beef Frozen beef offals Canned beef Frozen mutton and lamb Frozen pork

BS m § e Total of Argentine origin in 1935 less 6.935 tons. The total for 1939 shall in no case be less than 329.500 tons. 6,230 5.6 per cent of chilled and frozen beef quotas 30,280 44,800 in 1937 39,870 in 1938 9,340

o .

i OD

o α g »"g.S™ ac.S S â*·- s i a s 5α Β t£ 6 3

86.6

98.6

60.6 72.4

20.9 *

1.1 *

75.7 70.0

47.3 77.0 e

5.4 75 =

56.0

76.9

1.6

705

a

I.e., non-Empire countries. On the basis of total meat exports in 1935. See Supplemento Estadístico de la Revista Económica, May 1940, p. 6. c Based on the mean quota for the two years 1937 and 1938. The 1939 quota in this category was not expressly stipulated. b

* Not separately shown in the Argentine statistics. Sources: Tratados de Comercio de la República Argentina, pp. 84-85, for the quota provisions of the 1936 Treaty; and Economic Review, Series II, Vol. 1, No. 1 (1937), pp. 47-48. gaining, f o r by the terms of this part of the agreement regular ( q u a r t e r l y ) international conferences were to be held to regulate meat shipments to the United K i n g d o m . T h e f o l l o w i n g table also reveals the overwhelming importance of chilled beef among meat exports. Constituting over 7 0 per cent by weight

ROCA-R U N C I M A N

TREATY

OF

I936

155

of total shipments, 98.6 per cent of total exports of this type of product reached the British market during the life of the original Roca-Runciman agreement. A m o n g the other categories of meat exports affected by the new quota restrictions, frozen mutton and lamb alone assumes some importance, since approximately 7 per cent of Argentina's total meat exports are in this item. A s regards Argentina's share of non-Empire imports into the United Kingdom, chilled beef again ranks at the top with 86.6 per cent of the total. Quota reductions on foreign chilled beef thus in substantial measure represent reductions on imports of Argentine origin, the prospect of which (as has so frequently been mentioned in this study) almost invariably seems to increase what we may call the concession propensity of the vested Argentine livestock interests. Notwithstanding the disappointment following the imposition of additional quota restrictions on its meat exports, however, these restrictions were overshadowed by the application f o r the first time of customs duties on meat imports into the United Kingdom. Foremost among the meat duties in question, of course, was that levied upon chilled beef. Originally discussed in terms of A s to ι %d per pound, this was reduced to the level of the other products, frozen beef was subject to a % d duty on entrance into the United Kingdom, while frozen mutton and lamb and frozen pork were placed on a duty-free basis. In addition a uniform 2 0 per cent ad valorem duty was made ap3 The effect of the duty on peso proceeds of meat exports was largely offset by the government's granting an exchange subsidy of 1.65 pesos to the pound sterling for all chilled beef export bills surrendered to the control authorities. This rate was reduced to 1.237 pesos for meat shipments in May, 1937, as Smithfield prices improved relative to those prevailing before the imposition of meat duties. A s prices continued to rise, the Argentine Government made successive reductions in the subsidy. Shipments from June 1 to August 18 were subsidized at the rate of .825 pesos to the pound, while thereafter nothing more than the standard buying rate of 15 pesos to the pound applied to all meat export bills. By August Smithfield prices exceeded pre-duty period levels by something more than the duty itself. Cf. Informe de ¡a Labor Realizada desde et 1° de Octubre de 1935 hasta el 30 de Septiembre de 1937, Junta Nacional de Carnes (Buenos Aires, 1937), p. 19.

156

ARGENTINE

EXCHANGE

CONTROL

plicable to the following: frozen boneless beef and veal, beef offals, canned beef, preserved beef tongues, and beef extracts. Moreover, with a view to preserving a more or less u n i f o r m tariff incidence on Argentine meats under the new duty provisions, Article 8 provided that whenever the ad valorem equivalent of the chilled beef duty amounted to 1 7 per cent or less during any half calendar year, the 2 0 per cent ad valorem duties mentioned in the previous sentence were to be reduced f o r the succeeding half calendar year by two and one-half per cent f o r each two and one-half per cent by which the chilled beef ad valorem equivalent fell below 2 0 per cent.4 Such in outline were the most important of the specific provisions 5 of the British engagements in return f o r which Argentina was obliged to make ( 1 ) some further assurances concerning the British trade position in the Republic, but more particularly ( 2 ) formal and informal pledges of its intention to accord special treatment to British capital investments, and in some instances to goods of United Kingdom origin. W e turn now to a consideration of these latter aspects of the revised Roca-Runciman treaty. The trade assurances were of two types, one of which m a y be labeled specific assurances, owing to the reference to particular imports f r o m the United Kingdom, while the other may be classified as quasi-assurances or contingent pledges. With respect to the first of these, Argentina assured the British authorities ( 1 ) that it would not impose any new or increase existing port and handling charges on coal, coke and fuels derived therefrom which are produced or manufactured in the United Kingdom, and ( 2 ) that if the position of British coal, coke and fuel derivatives in the Argentine market is not maintained, consultations between the two Governments will be 4 Tratados de Comercio de la República Argentina, pp. 79-80. 5 A s distinct from the purely contingent pronouncements with respect t o the guarantee of equitable treatment of Argentine cereals, fruits, etc. in the event that it w a s found necessary t o impose quantitative restrictions o n their entry into the United Kingdom.

ROCA-BUNCIMAN

TREATY

OF

I936

I57

undertaken f o r the purpose of remedying the situation.* B y means of these commitments the duty-free conditions on which coal, etc. passed through the customs might not be converted into quasi-tariff terms as a result of arbitrary unloading charges. Infinitely more valuable than practicable commodity concessions not already bestowed upon Britain, especially in the light of the phenomenal improvement in Argentina's trade with the United States, 7 was the quasi-assurance of the so-called " equilibrium clause " of Article 9. Its hands having been tied " in spirit " under the provisions of the original Roca agreement, Argentina's position was now bound hand and foot in terms of specific and unambiguous formal treaty commitments. " T h e contracting Governments agree," reads this novel provision, " that if either of the two Governments is of the opinion that any measure undertaken by the other Government is likely to alter the equilibrium resulting f r o m this Agreement, the latter Government will give sympathetic consideration to the representations and proposals which the other Government may make with a view to effecting a mutually satisfactory adjustment of the matter. In the event that the two contracting Governments are unable to reach agreement within a period of three months f r o m the date of the receipt of the representations, the Government formulating the same will be free to notify the other Government of its intention of terminating this Agreement, and . . . this will cease to have effect one month a f t e r the receipt of such notification." 8 A s has just been re6 See Sections o and b of Part Five of the Protocol to the 1936 Agreement in Tratados de Comercio de la República Argentina, p. 83. It may be remarked that in view of the almost unrivaled complementarity of British coal and Argentine grains in the bulky trade between the two countries there are respectable economic grounds for defending these provisions. It may also be added that these provisions were introduced in part so that there would not be a repetition of the large purchases of Chilean coal of 1933. See on this point, The Times of Argentina, July 17, 1933, p. 7. 7 This will be developed in detail in the succeeding chapter. 8 The writer's translation from Tratados de Comercio de la República Argentina, p. 80. Equilibrium as used in this clause is undefined.

158

ARGENTINE

EXCHANGE

CONTROL

m a r k e d , an i n f o r m a l u n d e r s t a n d i n g o f precisely this sort m u s t u n d o u b t e d l y h a v e existed since the s i g n i n g o f the 1 9 3 3 a g r e e ment. I n substantiation o f this claim w e need h a r d l y g o b e y o n d r e f e r e n c e to the imposition o f the 2 0 per cent e x c h a n g e surc h a r g e merely in the face o f a n a r r o w i n g o f the g a p b e t w e e n the official and f r e e m a r k e t rates o f e x c h a n g e a f t e r m i d - 1 9 3 4 . T h e r e can be n o doubt, f u r t h e r m o r e , that A r g e n t i n a

f o r its

p a r t w a s in a n y perceptible m a n n e r inclined to deviate

sub-

stantially f r o m the u n w r i t t e n u n d e r s t a n d i n g in question. W h y , then, w a s it f o u n d necessary t o include the equilibrium clause ? A l t h o u g h the writer has not seen a single line relating t o this matter in a n y o f the several publications in the p a g e s o f w h i c h m u c h h a s been w r i t t e n a b o u t the g e n e r a l subject o f A r g e n t i n e e x c h a n g e control, apart f r o m but one related instance in w h i c h t h e i n v o c a t i o n o f the clause w a s u r g e d by the leading B r i t i s h t r a d e s p o k e s m a n in B u e n o s A i r e s , 8 it is s u g g e s t e d that its inclusion w a s s o u g h t alike b y the A r g e n t i n e and B r i t i s h

Gov-

ernments. W e m u s t seek the explanation o f this thesis largely in t e r m s o f the p r o b l e m s created by the s h i f t , begun in 1 9 3 5 , to a f a v o r able t r a d e balance w i t h the U n i t e d States. A t t h i s j u n c t u r e it is sufficient to r e m a r k that f r o m the B r i t i s h point o f v i e w it w a s desirable to introduce a n e w basis upon w h i c h A r g e n t i n a m i g h t " e x p l a i n " the denial o f a n y t h i n g a p p r o a c h i n g equality of

treatment

t o nations

which

in the absence

of

bilateral

p r e f e r e n c e s w o u l d h a v e a decided competitive a d v a n t a g e o v e r B r i t a i n in the A r g e n t i n e market. A n d as r e g a r d s the g e n e r a l list o f

imports,

there

is n o question

that anticipations

of

g r e a t e r competition f r o m the U n i t e d States elicited m o s t concern. S i n c e the trade balance a r g u m e n t had currently lost practically all o f its relevance, at least as f a r as the U n i t e d StatesA r g e n t i n e position w a s concerned, it m a y h a v e been r e g a r d e d as a b i t t o o r i s k y to rely on this type of reasoning. N o less i m p o r t a n t w a s the matter o f the k n o w n preparations then under w a y in W a s h i n g t o n f o r the consideration o f reciprocal trade 9 See below, p. 163, η 3.

ROCA-RUNCIMAN

TREATY

OF

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159

treaty negotiations with the Argentine government. Substantial achievements in this direction could not come to pass without materially reducing the degree of preference then enjoyed by British trade in the Argentine market. W h a t better means of forestalling a highly probable eventuality of this sort by means of an apparently innocuous equilibrium clause? T h e reader may next inquire somewhat incredulously as to the writer's grounds f o r maintaining that to all appearances Argentina as well as Britain welcomed the inclusion of such a clause in the revised agreement. Although their views on this particular issue have not been expressed in print, as f a r as the writer is aware, Argentine officials are known to have informed inquiring American business men that the largely fortuitous and non-recurring nature of the forces behind the s h i f t to the United States' unfavorable balance with Argentina—namely, the droughts of 1 9 3 4 and 1936—meant that Argentina could not take steps that might jeopardize the recent trade position of its principal customer. N o r was the United States Senate's failure to r a t i f y the United States-Argentine Sanitary Convention of 1 9 3 5 helpful in this regard. Moreover, since the Argentine authorities have consistently maintained that the pattern of exchange policy is determined largely by the behavior of the most important of their customers, 1 0 the simple expedient of an equilibrium clause proved to be a clever move. B y means of this clause they could avoid going on record officially as being unwilling to relax the discriminatory treatment f o r the real reasons divulged privately to American business men. B e that as it may, the important matter is that by thus arbitrarily freezing the largest segment of the Argentine import trade in the face of more or less regular variations in the pattern of world trade forces, many adjustments which would otherwise have been undertaken were rendered difficult or impossible. 10 That the United States ranked second on the list appears not to have been disturbing to officialdom.

ΐ6Θ

ARCENTINE 2.

EXCHANGE

CONCESSIONS

TO B R I T I S H

CONTROL CAPITAL

With respect to the second general form of concessions, namely those bearing upon the field of British capital investments in the Argentine, much the most important advantages derived from verbal as distinct from specific written commitments. A s to the latter, the relevant provisions of the 1933 Protocol were repeated without change in the Protocol to the new pact. That is to say, the Buenos Aires authorities gave assurances that they were disposed to grant to British capital " within the sphere of constitutional action " the best treatment consistent with the economic development of the country. A t the time of the negotiations for the original Roca agreement this provision appears to have been insisted upon by Mr. Runciman principally with a view to ( 1 ) providing a basis for obtaining the most favorable remittance terms for British railways in the event of further peso depreciation and/or currency manipulations, ( 2 ) softening the impact of labor legislation upon the cost position of the railways by linking such action directly with the expected functioning of the Roca pact, and ( 3 ) providing a precedent for use in a future in which the relative importance of trade and capital aspects of AngloArgentine commercial bargaining may have shifted markedly to the latter. On the other hand, the problems on the capital side were part and parcel of the negotiations for the revision of the Roca-Runciman agreement. First, the Argentine government was now engaged in a program of aiding the establishment of cooperative frigoríficos designed to assist the livestock breeders by openly competing in the export trade with foreignowned frigoríficos.11 The extent to which this program might be carried would depend largely upon the impact of the prol i See, e. g., Respuestas dei Poder Informes

de las HH.

Cumplimiento

Ejecutivo

CC. de Senadores

de la Ley

11,747,

1939) » and Los Frigoríficos,

Nacional

y Diputados

a los Pedidos

de la Nación,

de

sobre

Junta Nacional de Carnes (Buenos Aires,

el Impuesto a los Réditos y el Control de Cambios,

Ministerio de Hacienda (Buenos Aires, 1935).

ROCA-RUNCIMAN

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161

g r a m u p o n B r i t i s h units in the industry, since the meat e x p o r t t r a d e — e s p e c i a l l y in the all-important chilled beef was

virtually

coextensive

with

the

category—

quota-restricted

British

m a r k e t . S e c o n d l y , n e g o t i a t i o n s initiated in 1 9 3 4 f o r the purchase by the g o v e r n m e n t o f one o f the largest B r i t i s h r a i l w a y s , the

financially

stage where

w e a k C o r d o b a C e n t r a l R a i l w a y , had reached a representations

in the f a v o r a b l e atmosphere

of

e x t e n s i v e treaty discussions m i g h t s w i n g A r g e n t i n e officialdom to the acceptance o f the h a r d e r terms on w h i c h the R a i l w a y h a d insisted the t r a n s a c t i o n be c o n s u m m a t e d . It w a s surely no mere coincidence that the A r g e n t i n e authorities a p p r o v e d the purchase o f this r o a d j u s t a little o v e r a m o n t h a f t e r the s i g n i n g o f the 1 9 3 6 p a c t — f o r intermittent negotiations had been in p r o g r e s s f o r several y e a r s . A s a matter o f f a c t one i n f o r m e d unofficial source a v e r r e d that the matter o f the C o r d o b a C e n t r a l represented o n e o f the several important understandings constituting tions. 1 2

the A r g e n t i n e

concessions at the L o n d o n

negotia-

I n his m e s s a g e to C o n g r e s s P r e s i d e n t Justo r e g a r d e d

the deal a s a v e r y s a t i s f a c t o r y one, the £10,000,000 purchase price s t a n d i n g at but 53 per cent of the declared nominal value o f the p r o p e r t y . W h a t he failed to point out, h o w e v e r , added La Prensa

in its critical appraisal o f the transaction, w a s that

even t h o u g h the o r d i n a r y shares a n d preference debentures h a d risen o f late o w i n g to the publicity g i v e n to the imminence o f the t r a n s f e r o f the properties to the A r g e n t i n e g o v e r n m e n t , the f o r m e r stood at but 2 per cent o f the nominal value o f the property w h i l e the debentures w e r e only at 30 per cent o f par. 1 3 M o r e o v e r , b e f o r e C o n g r e s s h a d enacted the necessary legislation f o r the purchase o f the R a i l w a y , it had sanctioned a w a g e subsidy f o r this particular road, a m o u n t i n g to 1,500,000 pesos, w h i l e the a b s o r p t i o n o f its deficit o f 3,500,000 pesos increased the loss t o the g o v e r n m e n t to 5,000,000 pesos before

the R a i l -

w a y w a s acquired. 1 4 F i n a l l y , the disclosure in C o n g r e s s o f the 12 La Prensa,

J a n . 20, 1937.

13 Ibid., J a n . 14, 1937.

14 Ibid., J u n e 26, 1937.

IÓ2

ARGENTINE EXCHANGE

CONTROL

mode of calculating the " nominal " value of the property provided La Prensa with the straw needed for making the capping censure. We find that to the original sterling cost, less depreciation, was added accrued interest plus the difference between the peso value of the pound in the periods in which sections of the road were constructed and the ruling sterling rate. 15 Apart, of course, from the host of difficulties known to all students of public utility valuation to be associated with original cost reckonings, it is interesting to note that the exchange depreciation provision departed very materially from the treatment accorded other railways. Whereas the special remittance rate of 15.75 t 0 the pound reduced the "exchange l o s s " by approximately 23 per cent,16 the (retroactive) application of the 1 5 peso rate to the Córdoba Central valuation involved cutting down the effect of peso depreciation by about 38 per cent. In view of these circumstances there can be no doubt that the transaction was immeasurably more favorable to the investors than any scheme that might have been offered in the absence of London's unquestioned bargaining advantage. Similarly, negotiations for the transfer of British street railways in metropolitan Buenos Aires were favored by like considerations, although these negotiations were only in their formative stages in the period under consideration. In the third place, understandings relative to the matter of rail and road competition in the Argentine must also be ranked high among the unwritten concessions to British capital. Highway construction in many instances has been delayed or indefinitely postponed so that road facilities—far from adequate by any reasonable standard—might not parallel rail routes. Finally, understandings concerning competitive railway building and operations were not unimportant among the unwritten concessions, the more so since the addition of the Córdoba Central 15 Presumably the official buying rate, 15 pesos to the pound sterling. 16 This figure is the fraction which the remittance saving of 1.25 pesos to the pound bears to the difference between the old sterling parity and the official selling rate.

ROCA-RUNCIMAN

TREATY

OF

I936

163

would more than double the mileage of the State Railways. 1 7 Such understandings were not confined to capital items, however. Assurances of considerable value were also given to the effect that if Argentina quantitatively regulated imports of cotton and rayon piece-goods, the British quota would in no case be less than the average imports during the triennium 1 9 3 3 - 3 5 . 1 8 T h i s assurance seems to have been designed to take care of the possibility of a severe encroachment upon the British position in the Argentine textile market in the event Argentina abandoned its exchange control system, in which case quota restrictions would be required to keep out large quantities of Japanese textiles. In effect, it was no less than an explicit and specific supplement to the equilibrium clause of Article 9, although the breadth of the language employed in that Article might conceivably have required quota measures in the eventuality mentioned. Again, the British position in this market was further strengthened by the unwritten agreement to reduce the deduction f r o m sterling exchange creations f o r the servicing of Argentina's non-sterling foreign debts from £3,000,000 to £ 1 , 5 0 0 , 0 0 0 annually. 1 9 Since Argentina's external public debts payable in countries other than the United Kingdom were substantially unchanged from their 1 9 3 3 level, and since nothing has been shown to indicate that the £3,000,000 allowance had been excessive, 20 it may readily be concluded that the halving of the original Roca deduction on this account simultaneously enlarged the British share of exchange allocated f o r 17 Cf. e. g., Business Conditions in Argentina, Company (Buenos Aires, Jan. 1940), p. 20. 18 Cf. The Economist,

Argentine

Supplement,

Ernesto Tornquist and

Dec. 5, 1936, p. 1.

19 Ibid., p. I. 20 The bulk of Argentina's non-sterling foreign debts being dollar obligations, the shift to a favorable balance with the United States must surely be regarded as the determining factor in the British insistence upon and the Argentine acceptance of the halving of this allowance. The new level of the latter could be regarded as something of a fixture, as contrasted with the status of the trade balance with the United States—a not unimportant matter.

IÓ4

ARGENTINE

EXCHANGE

CONTROL

commodity imports and contracted that of other (nonprivileged) suppliers of the market. 2 1 F r o m this review of the outstanding novel features of the 1 9 3 6 agreement, it is evident that Argentina had to suffer further important restrictions on its exports to its principal foreign market. In this regard, the specific and ad valorem duties on Argentine meat were felt with particular gravity. Quota restrictions, the only impediments to British imports of the Republic's meat products under the original Roca accord, were extended somewhat, but even then were much more permissive than real. On the other hand, while few new trade concessions were specifically mentioned in the treaty itself and protocol, it was pointed out that extra-treaty written and unwritten understandings relating to both trade and investments assumed not unimportant proportions. Given the economic uncertainties prevailing at the time of the signing of the revised agreement, uncertainties associated chiefly with the unpredictable duration of the (export) boom then in progress, something in addition to a mere consolidation of its favored position in the Argentine market together with the provision f o r the protection of its capital must be regarded as a substantial achievement. Y e t the achievement was not without its disturbing repercussions upon Argentina's commercial relations with its second best but nonprivileged customer. 21 T o be sure, other treaty countries were accorded proportionately smaller deductions, at least formally; but since they received only most-favorednation exchange treatment as opposed to the totality of exchange created less the deduction for debt payments outside the treaty nations themselves (the German clearing constitutes an exception), it is difficult to see how their relative position may have been improved by the halving of the United Kingdom deduction. Incidentally, the halving of the latter is another interesting example of the manner in which exchange control innovations, instituted to satisfy the exigencies of Anglo-Argentine bargaining, are subsequently passed along to other and subordinate treaty partners in effectively diluted form.

CHAPTER VI T R A D E B A L A N C E A N D TREATMENT OF U N I T E D STATES TRADE, 1935-1937 ADDRESSING the representatives of the A m e r i c a n

business

c o m m u n i t y in Buenos A i r e s f o r the first time in the fall of 1935, F i n a n c e Minister Pinedo had occasion to lament the depression declines in United States purchases f r o m the A r g e n tine. A f t e r h a v i n g cited reductions in purchases to one-fourth the 1928-29 level in the case of hides and to one-third in the case of linseed, two of the more important of

Argentina's

e x p o r t s to the United States, and the difficulties with which A m e r i c a n importers have had to contend, he attempted to reassure his audience by remarking that when United

States

commodity acquisitions return to the level obtaining in the 1928-29 period " t h e American

[United

[official] exchange available to

States]

North

merchants will automatically

in-

crease w i t h o u t the necessity of their availing themselves of the free exchange market

[with its 20 per cent exchange

sur-

c h a r g e ] . " 1 T h i s declaration certainly shows that Sr. Pinedo w a s desirous of

witnessing a return to the

pre-depression

volume of exports to the United States, but it may be queried whether the statement is not egregiously ambiguous on the vital relationship between the increase in exports to the United States and the increase in the amount of official dollar exchange that w o u l d be made allocable

for the importation of

merchandise.

automatic

Surely

the

increase

to

American which

the

Minister alluded, the import of which was made c o n f u s i n g by his h a v i n g added the wholly irrelevant free market qualification, conceivably could have meant no more than ( s a y ) a mere 1 per cent increase in official dollar exchange even if exports to the U n i t e d States should have jumped by 100 per cent or more. 1 F r o m his speech delivered at the Fifteenth Annual Banquet of the United States Chamber of Commerce in the Argentine Republic. Cf. Comments on Argentine Trade, Sept. 1935, p. 31. 165

166

ARGENTINE EXCHANGE

CONTROL

I n e f f e c t , t h e r e f o r e , this latest official pronouncement seems t o h a v e been but the f o r m a l extension o f the trade balance criterion f o r the allocation o f e x c h a n g e to the case o f the U n i t e d States. A s m a y be observed f r o m T a b l e 13, w h i c h s h o w s the a n n u a l peso v a l u e o f

imports and e x p o r t s f r o m the U n i t e d

States,

U n i t e d K i n g d o m , and G e r m a n y f o r the y e a r s 1 9 2 7 - 1 9 3 7 / the a m p l i t u d e o f m o v e m e n t both w i t h respect to receipts a n d shipm e n t s is greatest in the case o f U n i t e d S t a t e s - A r g e n t i n e trade. C o n v e r s e l y , A n g l o - A r g e n t i n e c o m m e r c e is seen to be relatively s t e a d y — c h i e f l y because o f the character of the principal items TABLE

13

A R G E N T I N E I M P O R T AND EXPORT TRADE W I T H T H E U N I T E D STATES, T H E

UNITED KINGDOM, AND GERMANY,

1927-1937

(In millions of pesos) United States

United Kingdom

Year

Imports

Exports

Imports

Exports

1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937

495

191

378

649

441

198

373

516

213

371

Germany Exports

687

Imports 220 221

345

697

225

217

135

333

510

198

123

185

88

246

568

136

44

465

76

113

107

87

180 210

120

113

411

90

146

79

292

554

98

160

190

291

538

100

86 120 108

161

202

263

582

103

97

251

295

323

672

167

157

378 329

Source: Anuario, 1939, pp. Ixiv-lxxiii. The figures for imports are "real values", i.e. the monthly corrections of " tariff values." Export figures are also corrected monthly, shipments being multiplied by commodity valuations (aforos) to get the peso value of exports. See for further details and comments, Anuario, pp. lx-lxi. 2 Most of the figures published by the National Statistical Bureau (Dirección General de Estadística de la Nación) have to be accepted with reserve, for various reasons mentioned in other sections of this study. Despite their limitations, however, they are definitely useful. For some official comments on their limitations, see the analysis of the Bureau of Research of the Central B a n k , Economic

Review,

Vol. I, No. 1 (1937), p. 24.

TREATMENT

OF

UNITED

STATES

TRADE

167

composing that commerce, especially on the export side. The figures for Germany show a different sort of irregularity, markedly so during the autarkic years since 1933. While American purchases of Argentine products are tied up most intimately with the cyclical movements of the raw materials demand of the durable goods industries, Britain's in contrast consist very largely of bulky human and animal foodstuffs. Another important difference relates to the trade balance of these two industrial countries with the Argentine. Britain's is regularly favorable to Argentina, in good weather and in bad. W i t h the United States, however, the trade balance has turned favorable only during the concluding three years, when the combination of industrial recovery and droughts boosted the peso value of Argentine shipments to the United States to levels well beyond even those of 1928-29.' Not only was the 1928-29 level of exports to the United States surpassed during the period after 1934, but infinitely more significant in view of the over-riding emphasis which Argentine policy has placed upon the position of the two-way trade balance was the circumstance that the latter was now actually favorable to Argentina by a considerable margin. 4 Even with the comparatively high level of exports to the United States in the pre-1930 period, the commodity balance was still heavily adverse to Argentina. Y e t it may be inferred from Sr. Pinedo's remarks before the American business community that the state of affairs obtaining at that time was far from unsatisfactory. I f so, how much less unsatisfactory would be the realization of the acme in terms of the illusions of mercantilism? In other words, since Sr. Pinedo promised considerably better exchange treatment upon the realization of the 1928-29 status, he was in duty bound to provide something on the order of privileged treatment in the event the realization of this aim was 3 Strictly accurate comparability of the data requires adjustments for depreciation of the peso and the movement of prices over the past decade. 4 In part, of course, owing to the existence of exchange control restrictions.

L68

ARGENTINE

EXCHANGE

CONTROL

capped with a trade balance actually favorable to A r g e n t i n a . F o r not since late W o r l d W a r d a y s w a s the A r g e n t i n e trade balance, regularly favorable w i t h a host of countries, characterized by an export surplus with the U n i t e d States. It remains to be seen, however, whether or not the promised " automatic increase in official exchange " is intelligible in anything save the lexicon of the restrictionists themselves. Ι. T H E U N D E R S T A T E M E N T OF E X P O R T S TO T H E UNITED

STATES

A l t h o u g h nothing has been published in A r g e n t i n a

on the

5

score of ( i ) the allocation of official dollar exchange by countries and ( 2 ) the national share of total imports in terms o f broad commodity groups the e x c h a n g e cover f o r which w a s obtained in the official market, the necessity of complying with the Securities A c t as a prerequisite to the conclusion of a dollar loan in late 1938 has provided us with some u s e f u l figures relating to the share of A m e r i c a n merchandise imports receiving favored official exchange f r o m 1935 to 1937. A c c o r d i n g to this official source the percentage shares were, respectively, 35 per cent, 4 6 per cent and 60 per cent in 1935, 1936, and 1937.® T a k i n g the National Statistical B u r e a u ' s a d j u s t e d import and export figures, shown in Table 13, as w o r k i n g approximations, we may say that approximately 5 Disturbed

56 million pesos of official

by the t e n d e n c y t o c o m p a r e

dollar

exchange

allocated

for

i m p o r t s w i t h e x c h a n g e created by U n i t e d S t a t e s p u r c h a s e s in the A r g e n t i n e , Minister

1935 that

P i n e d o reminded his A m e r i c a n a u d i e n c e in S e p t e m b e r

" A m e r i c a n c i t i z e n s r e c e i v e infinitely [ s i c ] m o r e e x c h a n g e t h a n t h e y c r e a t e . " T h u s h e pointed o u t that in 1933 i m p o r t s f r o m the U n i t e d

States

totaled

107 m i l l i o n pesos, e x p o r t s 87, w h i l e e x c h a n g e w a s a l l o c a t e d t o the e x t e n t of 218 m i l l i o n pesos. In 1934 the s a m e figures w e r e 151, 78, a n d 181. T h e d i f f e r e n c e s b e t w e e n the first a n d t h i r d

figures

h a v e t o do, of c o u r s e , w i t h

s e r v i c i n g of d o l l a r indebtedness, p a y m e n t of A r g e n t i n e G o v e r n m e n t in the U n i t e d S t a t e s , etc. Cf.

Comments

on Argentine

Trade,

the

expenses

Sept.

1935,

P· 31. 6 " Prospectus : Argentine

Republic

Ten

Year

Sinking

Fund

External

L o a n 4^2 P e r C e n t B o n d s , " M o r g a n S t a n l e y a n d C o m p a n y ( N e w Y o r k , 1938), p. 22.

TREATMENT

OF UNITED

STATES

TRADE

l6g

e x c h a n g e w a s allocated t o importers o f United States commodities in 1935, w i t h 7 4 and 151 millions in 1936 and 1937, respectively. figures

T h e s e data are related t o several other official

in T a b l e 14. W h i l e the total of dollar exchange allocated

f o r import payment increased b y almost 200 per cent during T A B L E

14

ESTIMATED SALES OF OFFICIAL DOLLAR EXCHANGE, TOTAL OFFICIAL EXCHANGE PURCHASED, AND TOTAL ALLOCATED FOR IMPORTS, 1935-1937

(In millions of pesos) ο,

ss ÔT3 Ifi. fl

a

O)

>1 1935 1936 1937 a

Memoria

5

l-SS äS.g

ΙΛ

„» s o eä β IN 18 te

-2

a s » g a ae. s u

«3

.2

n i

ai - σ

§=5-5

« ¿ai

's

-s St¿ o o2~

a, £ 3 3-S8

ΟΛ

be

-sgg α cE£ .S c - M IJ.S C β

EJS £1-3

es:» ¿ ^ g

56

1365

913

6.1

13.7

74

1701

945

7S

14.4

151

1849

1338

11.3

16.1

del Departamento

de Hacienda,

1936, p. 136 and 1938, p. 141.

b / 6 « f . , 1936, p. 137 and 1938, p. 142. c

Anuario,

1939, pp. Ixiv-lxxiii and p. xxix.

the three-year period, and while the share o f dollar exchange purchased with prior permits had been augmented by somewhat in excess o f 85 per cent, the improvement began t o make itself evident only a f t e r a considerable lag. T h u s in 1936 the acquisitions o f official exchange by the control authorities had increased by 235 million pesos over the preceding year, but allocations f o r imports rose b y only 33 million. T h e relative position o f the U n i t e d States was almost unchanged. I t w a s only in the y e a r 1937 that the A m e r i c a n share in the allocations f o r merchandise imports improved substantially, a condition due in large measure t o the rather widespread criticism directed at the authorities f o r failing to liberalize the g r a n t i n g

C

170

ARGENTINE EXCHANGE

CONTROL

of exchange while the government was making phenomenal additions to its exchange profits fund. 7 It is not inconceivable that official exchange allocations during the three-year period under review would have been substantially larger than as given above had due emphasis been placed upon the tendency to understatement of dollar exchange creations in the official Argentine statistics of exports to the United States. The Finance Ministry repeatedly published, for the most part in brief notes in La Nación/ figures relating to the so-called market [substantially f. o. b.] value of exports to the United States as compiled by the National Statistical Bureau, and in most instances readers were given to believe that such figures were identical with dollar exchange creations.® A s a matter of fact, the degree of understatement involved in such figures has worked to prejudice seriously the interests of importers of American merchandise. A t bottom these figures err by the extent to which the average quality (and price) of Argentine exports to the United States deviates from the quality taken by the National Statistical Bureau as representative of group and subgroup exports to all countries. We may illustrate the character of this understatement by analyzing a group of exports in which the difficulty involved is rather clearly evident. In Table 15 we have selected the leading hide and skin exports to the United States, showing the f. o. b. dollar value as indicated on official United States consular invoices, the equivalent in pesos converted at the official buying 1 0 rate 7 From a mere 32,800,000 pesos at the close of 1933, and 160,400,000 by June 1935, the Ministry's gold and foreign exchange holdings had increased to 911,300,000 pesos as of June 30, 1937. Cf. Memoria del Departamento de Hacienda, 1935, p. 79, 1936, p. 136, and 1938, p. 141. 8 See also Sr. Pinedo's comments before the United States Chamber of Commerce in the Argentine Republic, note 5 011 p. 168. 9 In this and similar contexts it should be understood that dollar exchange creations are not synonymous with Argentine dollar receipts. 10 It may be objected that the selling rate is the appropriate conversion factor in this connection. This is not so. Exccpt possibly in the case of sub-

TREATMENT

OF

UNITED

STATES

TRADE

I7I

of dollar exchange, and the peso value as published in the Argentine official statistics. The consular invoice figures are hardly likely to be consciously overstated in view of the fact that they serve as one of the bases on which customs duties are calculated in the United States. In contrast, the valuations placed upon Argentine exports under the " aforo system ", 1 1 a procedure originally designed for the purpose of obtaining values for export taxation and still used as the basis of reckoning the three mill " statistics duty ", are insufficiently accurate for use in determining the magnitude of exchange creations. 12 In the first place, quantities exported to specific countries are reduced to value terms by the application of an over-all common conversion factor, so that there results a marked overvaluation of low-value merchandise and a no less marked undervaluation of high-value commodities. Thus in a given month the range of prices of different grades of (e. g.) wet sidized commodities, from which at this date hides and skins were excluded, t h e standard buying rate alone must be used for converting foreign currencies into pesos for export valuation purposes. For an example of the erroneous use of the dollar selling rate for such conversion purposes, see Comments on Argentine Trade, May 1940, p. 9. 11 See above, p. 144, n. 81. 12 T h e Bureau of Research of the Central Bank has published certain adjusted trade figures in which it takes explicit exception to the valuations of the National Statistical Bureau, although there is not the slightest implication in the Central Bank's analysis that its findings have anything to do with the problem posed in our text. Its adjustment is largely for exports the bills for which are disposed of at rates in excess of the official buying rate (wool until December 1936, exports to neighboring countries, etc.). O n the basis of its findings, in which the average selling rate was used for conversion so as to facilitate comparison with import figures, we have made allowance for the difference between buying and selling rates with the result that the net upward adjustment in export values shown by the Central Bank is as follows: 1934—2.96 per cent; 1935—2.84 per cent; 1936—2.63 per cent. Although these relate to total shipments from all sources, it is interesting to note an official disclosure of a t least a general downward bias in the National Statistical Bureau's export valuations. See Economic Rei-ieiv, Series I I , Vol. I, No. ι (1937). PP· 23-24.

I72

ARGENTINE

EXCHANGE

CONTROL

cattle hides may be f r o m 3 5 pesos per 1 0 0 kilos to 1 2 5 pesos; yet all exports of wet cattle hides will be converted at ( s a y ) 65 pesos in the Argentine official statistics. If hides taken by the United States during this particular month averaged 9 0 pesos per 1 0 0 kilos f. o. b. Argentine ports, while country X ' s purchases were made at an average price of 45 pesos, exactly twice as much official exchange would have been created per 1 0 0 kilos of sales to the United States than to country X . T h e Argentine official statistics, however, would reveal no difference whatever. Since it is a well known fact in the hide export market that United

States acquisitions as a rule are pre-

dominantly of the superior grades, the valuations under the " a f o r o system " must be interpreted with particular care by all not having access to true export returns. W e have taken the consular declared invoice figures as indicative of the latter. T h e true figures are also in the possession of the exchange control authorities, since exporters are required to report the equivalent of the United States consular declared invoice figures to the E x c h a n g e

Control Office. 1 3 A s

regards public pro-

nouncements, however, the authorities invariably employ the undervalued National Statistical Bureau figures of exports to the United States. In the second place, the official published figures are further distorted in periods of rising prices, such as the 1 9 3 5 - 3 7 interval, by the fact that the conversion ("aforo")

factor

applicable to the given month's exports is cal-

culated on the basis of prices ruling in the previous month. Thus the downward bias of Argentine published export

figures

f o r the 1 9 3 5 - 3 7 period is aggravated by the lag of a month. T h a t the downward bias is no trifling matter may be observed by an examination of Table 1 5 . T h e amount by which the United States consular declared invoice figures exceed those in the Argentine official statistics works out to be 20.1 per cent 1 3 O n Form 209, "Declaración Jurada de Embarque al Extranjero."

T R E A T M E N T

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§

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00" CS co"

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