intricacies of the banking problem in Latin America. Such incidents as
local loans, credits and financing, need not concern us, and are best
left for solution to those in this line of business. It is to be hoped
however that the presence of American banking institutions throughout
Latin America will result in the financing with American money of
municipal and national improvements such as water-works, sanitation,
electric and gas companies, subways, harbor improvements,
fortifications, building of warships, telephones, electric and steam
railways. It was the custom of the European financier in making such
loans to stipulate that the work should be done under the supervision of
citizens of, and with articles and machinery purchased in, the country
placing the loan. This was as it should be. It gave their engineers and
contractors an opportunity to force upon these countries their products
and methods, provided permanent employment for many of their countrymen,
who in return created a demand for articles of home production.
We may therefore consider the banking situation only in so far as it
applies to the traveller, the house he represents and the customer he
sells in the accommodation it can afford them and the service it may
render all parties. One of its chief uses will be to give reliable
information as to the credit rating of customers.
From a financial point of view all of Latin America may be divided into
seven groups: (1) the east coast countries of Brazil, Argentine, Uruguay
and Paraguay; (2) the west coast countries of Chile, Peru, Bolivia and
Ecuador; (3) the northern countries of Venezuela and Colombia; (4) the
Central American Republics of Guatemala, San Salvador, Nicaragua, Costa
Rica, Honduras, with which Haiti may be considered; (5) Mexico; (6) the
countries wherein American banking systems exist, such as Panama, Cuba,
Santo Domingo and Puerto Rico, and (7) the extensive group of foreign
possessions and islands such as British, French and Dutch Guiana,
British Honduras, Trinidad, Barbados, Jamaica, Martinique, Guadeloupe,
Curaçao and St. Thomas.
The first and second groups of these South American countries are almost
entirely under the domination and control of the European financier, the
English being paramount, followed by Germans, French, Italians and
Spanish, in the order named. Throughout Brazil, Argentine, Uruguay,
Paraguay, Chile, Bolivia, Peru and Ecuador, in all the larger cities and
ports, as well as in the interior and isolated towns, where business is
to be had, may be found branches, agencies, or representatives of
banking houses of these nationalities. They keep their fingers on the
pulse of trade, know mine outputs, crop prospects, cattle productions,
stability of governments, possibilities of revolutions or political
unrest, the condition of business—in a word everything that has any
bearing on banking or that could by any possibility reflect on the money
market. Taking all these elements into consideration together with the
important factor of the question of supply and demand, they decide the
price of exchange each day or how much a merchant having a foreign
obligation to meet, must pay for the necessary sum to liquidate his
indebtedness. Very naturally a better price is quoted for the money
required if payment is to be made in coin of the bank’s nationality for
the reason that it necessitates less actual movement in the medium of
exchange, the entire transaction as a rule being done on paper. This
preliminary saving of a fraction of a per cent. in a big business means
much in the course of a year and it has a strong tendency to make the
buyer seek markets so situated that he might profit thereby. On the
other hand the Latin American trader desiring to remit to the United
States for goods bought in this country is forced because of lack of
direct financial connection in South America to buy his exchange on
London, Hamburg, Paris or some other European money center, thereby
giving the European banker a profit of a fraction of a per cent. on
every dollar of our foreign business. Furthermore, invoices and bills of
lading are frequently attached to banking documents for custom house
clearance and other purposes, thereby giving the European banker and
through him, his clients and friends, an opportunity of learning our
prices and terms. And so, not content with giving the foreign financier
a chance to make money on our export trade, we also aid our greatest
competitors by supplying prices and information to defeat our commercial
purpose.
Some mercantile houses in the larger of these countries maintain for
their own use accounts in New York against which they draw when
liquidating bills in the States and do a general banking business as
well, including the cashing of drafts and selling of exchange. Obviously
only a large business concern could afford to do this and their natural
tendency is to sell direct exchange on New York as high as the European
banks. The dealer with small capital or the foreign merchant is
invariably for one reason or another forced as a general rule to do
business through the European banker when in need of American exchange.
In both Venezuela and Colombia, their nearness to the United States, a
direct steamship service to our leading ports and the fact that we as a
nation take the bulk of their products, combine to overcome all attempts
on the part of Europeans to establish banks in these countries. As the
local exporters ship their goods to our shores where they are disposed
of they instruct their agents to deposit the moneys so received in local
American banks, against which they issue checks in liquidation of
indebtedness, thereby eliminating the necessity for the services of the
international banker. Local banks in these countries, never very strong,
and always subject to forced loans from financially embarrassed
governments, do not enter materially into the business life of the
community although they also maintain credits in New York and sell
drafts against them. The consequence is that every leading merchant
throughout these lands develops into a foreign banker, on a small scale,
and buys and sells exchange. As long as this condition prevails, and it
works most satisfactorily, the foreign bank will not be required to open
its doors.
Practically the same state of affairs occurs in Central America, the
general tendency to political unrest and the existence of an
inconvertible paper currency in some of these countries, (similar
conditions being current in Colombia) serve to emphasize distrust in
local banks and concentrate banking operations in the hands of the
larger mercantile houses.
Prior to the revolutionary troubles which are now convulsing Mexico,
American, English, German, French and Spanish banks were to be found
throughout that country. The presence of the American banker in this
territory and the great bulk of trade movements between Mexico and the
United States, kept the price of exchange within reasonable bounds.
In Panama, Cuba, Santo Domingo and Porto Rico, American banks exist and
American currency is in use almost exclusively. All financial
calculations are made in dollars and cents and a complete and perfect
system of exchange on leading cities of this country is current so that
the subject need not be further discussed.
As is to be supposed, the European countries having possessions in the
West Indies and South or Central America, very naturally have banking
facilities between these colonies and each mother country. In addition,
prominent Canadian banks have successfully established branches in the
largest of the British colonies for the purpose of building up direct
trade with the Dominion of Canada, thereby eliminating the tribute
London usually demands on exchange. Although we take much of the exports
and sell these possessions most of their necessities, still the
individual business done in each island or colony is relatively small
and the field of operation too restricted to warrant other banking
connections. Besides exchange on New York is cheaper here than
elsewhere, owing to the fact that both Canadian and English banks
maintain branches in that city. In the other colonies merchants, as a
rule, have personal accounts in American banks in the States and are
thereby enabled to handle their own transactions advantageously.
There are four monetary systems in use in Latin America: (1) the gold
standard, wherein gold is the only legal tender, other forms of money
being maintained at a parity with or without a government guarantee; (2)
the gold exchange standard, wherein gold and other forms of money are
legal tender, the conversion of the legal tender into gold being
guaranteed by the government; (3) the silver standard, wherein silver is
the legal tender, and (4) inconvertible paper, the value of which
continually fluctuates and is dependent entirely upon the stability of
the government’s credit.
The gold standard is used by Bolivia, Cuba, Costa Rica, Ecuador, Peru,
Porto Rico, Santo Domingo, Uruguay, the British, French, Danish and
Dutch West Indies and possessions.
The gold exchange standard is in use in Argentine, Brazil, Mexico,
Nicaragua and Panama.
The silver standard is current in Salvador and Honduras.
Inconvertible paper is found in Chile, Colombia, Guatemala, Haiti and
Paraguay.
The basis of exchange between countries depends primarily on the
relation existing between the gold value of their respective moneys, the
price paid being materially influenced by the condition of the balance
of trade and the social or political state of the country. For example,
with the balance of trade in favor of England, the price of exchange on
that country would go up a fraction of a point or so, while if a country
is in a state of political or economic unrest, or at war, the price of
exchange on it goes much higher than if conditions were normal. For
these reasons exchange in all countries varies daily, the price for the
day being decided upon the receipt of European cables from the home
institution. It will therefore be apparent that it is impossible to
determine a fixed rate of exchange for any definite period. By buying
when exchange is low and selling when it is high, much money can be
made, especially if the sum involved is large. The United States did a
gross business with Latin America in 1912 of $526,468,815, practically
all of which was paid for by European exchange. Assuming that the
commission charged was one-half of one per cent., the cost to the
American merchant would be $2,632,344, which in itself is a strong
argument for American banks in these lands.
Furthermore the home offices of all of these European banks having
branches throughout Latin America, have had in mind the rendering of
financial assistance to the home merchant or manufacturer. This was
especially true of the German organizations, which were designed to
foster and facilitate commercial relations of all kinds abroad. In the
headquarters of these institutions, complete records and data are kept
regarding all overseas merchants, their credits and the financial
turnover of their business each year being known. As a consequence when
the exporter presented his shipping documents at say Hamburg, the bank,
should he so desire, knowing the rating of the importer, discounted the
bill, and for the service rendered charged a commission, while the Latin
American customer had the benefit of the time agreed upon for payment,
according to the terms of the sale. Compare this perfect system of the
banks extending courtesy to the exporters and the importers with the
American policy of “cash against documents” and we see another vital
reason why the Europeans succeeded in their conquest of these markets.
The American manufacturer with small capital was handicapped. His
business demanded a quick turnover; he had no way of ascertaining Latin
American credits and no American banking connections to accept his
export shipping documents at a discount. As a consequence, the door of
this trade was closed to him and his productions.
Owing to the fact that gold coin is bulky and heavy to transport and
paper money of a foreign nation always worth as a rule much less than
its face value, a traveler is accustomed to carry what is known as a
Letter of Credit. This is a document issued by a bank to a person or
concern authorizing him or it to draw on the bank or its correspondents
drafts for the whole or any desired part of the sum named in the Letter
of Credit, by means of sight or time drafts. Customary means to prevent
forgery of the holder’s signature are provided. On presenting this
document to the bank’s foreign correspondent, the sum desired is
advanced in the money of the country or in the monetary terms expressed
in the Letter of Credit. These Letters of Credit are always time limited
and are made against cash or some suitable guarantee to the bank issuing
them.
In traveling in South America it is advisable to have two different
Letters of Credit, one in Pounds Sterling and the other in Dollars. In
Central America, Venezuela, Colombia, the British, Dutch and Danish West
Indies it is often more advantageous to use dollars when buying exchange
or getting cash on the Letter of Credit, while in Chile, Argentine,
Brazil and Uruguay, pounds sterling are better. Before selling exchange
on your Letter of Credit or realizing money on it, always visit the
banks and see which one offers the best rate and whether English or
American gold is in demand. By taking advantage of these conditions much
money can be saved in the course of a long trip. The opening of American
banks in Latin America will do much toward making the dollar popular and
travelers are advised to take out letters of credit through United
States banks with local branches in these lands.
It has been the understood custom for the correspondent banking house on
whom a letter of credit was drawn to give the holder all information
desired as to the rating and financial standing of local merchants and
to aid him in every way possible. This was done in theory more than in
practice. Assuming that your letter of credit was on an English bank in
Buenos Aires, and that you were selling cotton goods, it would be most
natural for the bank manager in Argentine to evade all direct
information as to a possible customer’s standing, especially if his home
institution had been discounting bills for a good client in England
drawn against the local merchant. This is generally the attitude of bank
managers in competitive lines and particularly when there is a tendency
to cut into the trade of their customers. In this regard they can hardly
be blamed for they are really protecting their patrons. If however, one
is selling flour, or something which England cannot produce, the desired
information is given fully and freely and every assistance rendered.
Native or private bankers are not so reliable or as trustworthy sources
of information.
In only two or three South American countries are there responsible
commercial agencies; therefore, after getting what data you can from the
bank it is always well to verify it by any other means at hand.
Customers will often give references either in Europe or America as to
their standing, which should be corroborated. Inasmuch as you desire
information as to your clients’ credit and standing, you should be
equally willing to establish the reputation of your house and to that
end should assist as much as possible in supplying whatever facts in
this connection may be wanted.
To illustrate the insufficiency of our knowledge regarding Latin
American credits, let me cite a personal experience. At the beginning of
the war in Europe, one of the largest daily papers in Buenos Aires was
refused credit for less than $100.00 a week of cable news, because there
was no really reliable means in New York of satisfying the manager of
the foreign press agency that the paper was of the highest financial
standing. A moratorium had been declared in the Argentine and Europe and
at that time no direct banking connections existed with the United
States. This condition of affairs only served to make the New York
manager insist that the service be paid for weekly. He was absolutely
unwilling to extend credit for even ninety days, provided the paper paid
the cable tolls in Buenos Aires, which it had offered to do. The
publication, its plant, equipment and the building it owns and occupies
are easily worth $5,000,000. Furthermore it is eminently responsible and
reputable. With all the manifold resources of a great, wealthy
newspaper, it was absolutely impossible for it to remit money to the
United States to get the war news so essential for its readers. Cables
to Europe were cut, as the world knows, thereby preventing it from
getting reports from this source. Its position was desperate. After
finding that efforts to obtain the desired service from the press agency
were useless and that no credit would be extended, the South American
editor, in despair, cabled me, and I financed the paper for five months,
paying weekly the bills incurred. With the opening of the National City
Bank in Buenos Aires, remittance in full with interest was made for the
money I had advanced, the draft sent me being one of the very first
issued by that institution. This American news association had a great
opportunity to establish a profitable connection in a country where a
service of this kind is badly needed, for the favorable attitude of the
press is of the greatest benefit in developing both business and
friendly relations between nations. Instead of taking advantage of the
situation, the position it assumed has positively hurt us as a nation.
One of the things to be met and overcome is the question of long
credits. European merchants originally extended much time to reliable
customers. Instances are on record of from twenty-four to thirty-six
months being given. Goods were often shipped on consignment. The
tendency of late, however, as business became established in these lands
has been to curtail credits. This condition is one which demands
delicate and diplomatic handling and very naturally will be materially
controlled by circumstances. European banks were organized, as
hereinbefore explained, to discount long time paper, provided the drawer
and the drawee were considered good risks. The Federal Reserve Act,
however, falls short of helping us in this regard for the life of a
foreign negotiable draft is limited by it to ninety days.
Long credits are not to be encouraged. They were excusable in the age of
the sailing ships and poor banking facilities, but with the quick
transportation service of to-day are unwise and unnecessary. Under no
conditions should more than six months time be allowed and that only for
some special line dependent upon some future contingency, such for
instance as crops—agricultural machinery being a good illustration.
Staples and necessities require less time to dispose of and ninety days
should be ample. If possible it might be wise to get the customer to
agree to pay one-third of the invoice on receipt of shipping documents
and the balance in sixty or ninety days. On overdue accounts, the Latin
American merchant has always been accustomed to pay a good rate of
interest.
XXVI
PACKING AND SHIPPING
The method of packing goods intended for the export markets of Latin
America is worthy of the greatest study and the most serious
consideration. Poor and improper packing, so characteristic of American
made goods, has caused us the loss of much business, and wherever I have
been in these countries it has formed the subject of much unfavorable
comment and highly warranted criticism. Of late there has been a slight
tendency toward improvement in this really important branch of the
foreign trade, but there is still much opportunity for bettering
conditions in this regard.
In the United States with every forwarding facility, the largest, best
and most complete transportation systems on earth, we are prone to think
of the rest of the world as being similarly provided with modern methods
for handling goods. The fact is that the burro, the llama, the camel,
the elephant, the coolie and the Indian are yet the greatest common
carriers, and it will be many, many years before the shrill whistle of
the locomotive will supplant the jingling bells of the pack train, or
the slow moving caravan, in the outer edges of terra firma. In Latin
America to-day, in proportion to its size, there are comparatively few
railways, and fully another century will elapse before it possesses half
the amount of mileage that we have at present in the United States. This
is primarily due to the scarcity of population and secondarily to the
inaccessibility of many of its interior towns, built in early days in
remote and secluded spots so as to be free from the frequent invasions
of buccaneers, as were the coast cities, or for the purpose of being
near some rich mine or fertile agricultural district. The narrow
mountain trails that wend their circuitous and tiresome way along the
gigantic buttresses which Nature has so profusely placed throughout this
part of the world are the only routes to these inland cities. As a rule
they are hardly wide enough for two mules or pack animals to pass,
except at certain localities. On one side they are bounded by the walls
of snow-tipped mountains, which raise their majestic heads into the
clouds, while on the other yawning abysses, hundreds, sometimes
thousands of feet deep, open their gaping mouths, along the bottom of
which winding watercourses wend their way to the sea.
[Illustration:
_Photograph by Underwood & Underwood_
A Pack-train on the Andes Trail in Colombia
“In the United States with every forwarding facility, the largest,
best and most complete transportation systems on earth, we are prone
to think of the rest of the world as being similarly provided with
modern methods for handling goods. The fact is that the burro, the
llama, the camel, the elephant, the coolie and the Indian are yet
the greatest common carriers”
]
Many of the ports of Latin America are open roadsteads, such for
instance as Mollendo, Peru, one of the gateways to the interior of that
country and Bolivia as well. At certain seasons of the year it is almost
impossible for one to land and I have known of vessels to wait as long
as six weeks before getting their cargoes discharged into the rolling,
tossing lighters which continually thump and smash against the side of
the ship. After the lighters are loaded, they in turn have to wait days,
weeks and often months before a favorable opportunity arrives for
getting their contents ashore. Without being conversant with these
conditions one can hardly realize the strain and pressure exerted upon
packing cases at such times.
After the goods have been brought to land by the none too gentle
longshoremen, they are opened by the customs authorities and examined,
and are then placed upon trains for forwarding into the interior points,
for practically all these ports are the terminus of some railway leading
into the remote inland districts. When they have gone as far as the
train can take them, they are then consigned to the tender mercies of
the muleteer, aided and abetted by the llama, burro or mule, and may be
weeks on the road to their final destination.
The varying climatic changes to which they are subjected should also be
given due consideration. Leaving the ice-bound northern ports of the
States in winter, they come through the storm tossed waters of either or
both oceans to the port of disembarkation, where for days they may rest
under the broiling tropical sun. As they follow their path to the
interior, on train and by beast of burden, they pass through torrid heat
and tropical rains, across wind swept plateaus, through sand and snow
storms, sleet and hail, above the clouds in high altitudes, and down
into green valleys, across swollen streams, and on again up the sides of
steep canyons, and through gloomy woods. Each night they are unstrapped
from the animals’ backs, and roughly thrown on the ground along the
trail or in the filthy barnyard of some mountain hospice. Before the
stars have stopped their twinkling in the early dawn they are again
piled upon the backs of the unwilling, resisting beasts and the dreary,
wearying, monotonous march resumed.
Custom has decreed the exact weight each burro, llama or mule will carry
and let me add that these animals know to a nicety their load, and are
life members of a union that prohibits its initiates from carrying more
than is expected of them. Attempts to overload bring forth growls,
groans and moans, and if these signals of protestation are overlooked by
the attendants, the animal flatly refuses to budge, until the burden is
made the standard union size, a condition of affairs that must be
extremely satisfactory to the cause of labor.