394          FOREIGN RELATIONS, 1942, VOLUME VI
822.5151/597: Airgram
   The Secretary of State to the Amba8sador in Ecuador (Long)

                    WASHINGTON, September 15, 1942-A: 55 p. m.
  A-58. Please take appropriate action on the following communica-
tion which the Department has received from the Acting Secretary
of the Treasury in regard to the request of the Minister of Finance
of Ecuador 61 transmitted by your despatch no. 3024, dated May 25,
1942,62 for the opinion of the Treasury Department with respect to
the interpretation which should be given toi paragraph 10 of the
Stabilization Agreement of February 27, 1942.
  "I note that the Minister of Finance expresses his disappointment
that the interpretation given to paragraph 10 by Dr. Salazar is not in
conformity with this Department's interpretation and in consequence
the Ecuadoran Government increased the dollar value of the sucre
by approximately 6 percent believing that this would not be regarded
by this Department as a "substantial" change in the sense of para-
graph 10. I also note that the Finance Minister particularly regrets
this occurrence since the change cannot be corrected and since it was
never the intention of his Ministry or of his Government to violate
the terms of the Agreement.
  "This Government has an interest in the dollar-sucre exchange rate
which is scarcely less direct than the interest which the Ecuadoran
Government has in the sucre-dollar exchange rate. Paragrph 10 of
the Stabilization Agreement with Ecuador is an expression of this
bilateral interest in the exchange rate between the two currencies
and requires that the Secretary of the Treasury shall be given an op-
portunity for consultation before substantial changes in the exchange
rate are made.
  "The Treasury Department takes the position that the above-
mentioned change in the dollar value of the sucre made by the Ecua-
doran Government was a "substantial" change within the meaning
of
paragraph 10. In fact, a change in the exchange rate of much less
than 6 percent may be a "substantial" change. For example, under
certain conditions, a change of 1 or 2 per cent in the exchange rate
may be expected to have a substantial effect on the delicately balanced
financial relationships that normally exist between any two currencies.
  "I shall appreciate it if you will communicate the above to the Min-
ister of Finance in Ecuador. Please also convey to the Minister my
satisfaction in his assurances that no further changes in the dollar-
sucre rate of exchange are contemplated unless, after some time, spe-
cial and important circumstances intervene to require a change. Now
that this Department's interpretation of paragraph 10 has been made

' Vicente Illingworth.
62 Not printed; it reported that the Ecuadoran Minister of Finance had failed
to advise the United States Treasury Department of a change in the exchange
rate of the sucre.