Salvador of the Twentieth Century

by Percy F. Martin

Station Building at Santa Ana on the Salvador Railway.

With such prospects the Salvador Railway seems destined to enjoy a time of great prosperity; and, indeed, the outlook would be practically undimmed but for the ever-threatening question of the exchange. The high rate of sterling exchange constitutes a very real and visible "fly in the ointment." Salvador, it may be pointed out, has the advantages of a metallic currency, with no fiscal paper money of any sort; but, unfortunately, it is a silver currency, which is aggravated by the circumstance that the export of silver, if not actually prohibited by legislation, is at all events very difficult to bring about, inasmuch as official permission is required, and is as often refused.

On the other hand, the banks are overstocked with silver, and are willing to lend sums at what may, for these parts of the world, be considered very low rates of interest—namely, 5 per cent. per annum—which enables people, who would otherwise be compelled to sell drafts against their exported produce, to hold them back, and, by a simple understanding among themselves, keep the rates as near to 200 per cent. premium as may suit their own interests.

The Salvador Railway Company, which has a silver tariff pure and simple, has to buy sterling drafts, whatever the rate may be, in order to meet debenture interest payments, the cost and freight upon all imported materials for its various services, insurance upon its properties, its London expenses—including directors' remuneration—and towards this large expenditure the only sterling contribution of the country is the Governmental subsidy of £24,000 per annum, which payment will terminate automatically in 1916.

In sending out their Chairman, Mr. Mark J. Kelly, therefore, in 1910, to endeavour to reduce the company's burden in this respect, the Board of Directors undoubtedly made a wise move, inasmuch as no one could possibly be better placed, by reason of his great popularity and exceptional experience, than Mr. Kelly to conduct such delicate and intricate negotiations. In spite of such influence and personal weight, however, I am much afraid that the time is hardly yet when any serious modification of the terms of the company's concession—such as the granting of a tariff payable in gold—may be looked for.

At a time when gold is in the neighbourhood of 200 per cent. premium (i.e., 1 silver dollar equals 33 cents gold) this would mean an increase in the tariff rates, and the Government can hardly be expected to authorize that increase in the present circumstances. As a matter of fact, the company's tariff is much below that of any railway undertaking in the whole of Latin-America, of which I, at least, have any cognizance. But the public are hardly likely on that account to be any more disposed to fall in with an increase in the railway's rates.

The outlook for the Salvador Railway generally is, as observed, a hopeful one. It is admitted by all who are acquainted with its operations that its advent and completion have materially aided the development of the Republic's resources, and day by day the expansion of its industries is becoming more apparent. The local traffics, showing as they do gradual but consistent development, are the outcome of the safe but conservative policy of the management, whose relations, as I have already observed, with the railway's clientèle are of the most friendly character. If the agricultural development of the portions of the country served by the railway have been somewhat slow, the movements have, at least, been consistent; and there can be little doubt that an intelligent expansion of the Republic's magnificent possibilities is merely a question of time. No permanent improvement must be expected, however, to assert itself until the difficulties of exchange have been overcome. While poor trade may have somewhat affected the returns of the last two years, the rate of exchange has been responsible for the greater part of the financial disappointment. Possibly the poor trade is the cause of the exchange being so high, as much as the exchange being the cause of the poverty of trade. So far as the railway is concerned, the effect is certainly twofold—directly, by reason of the loss upon remittances to the head-office in London; and indirectly, on account of the prejudicial influence upon trade.

There is a very general and perfectly comprehensible complaint that, in spite of the better crops which have been garnered this and last year, and the abundance of silver currency, actual sales of merchantable goods have been less, on account of the high rate of exchange compelling the sellers to continually mark-up their wares. One result of this is that the merchants have ordered fewer goods, and the railway has carried less freight.

Unfortunately, in Salvador—as in other parts of the world, our own not excepted—there are several divergent opinions upon this question of economics, and here one comes across as many individuals who are in favour of a high exchange as those who decry it. The planters, for instance, hold that the high exchanges constitute a clear and legitimate bonus upon the value of the coffee, the indigo, the balsam, and the other articles of export; while the importers clamour loudly, and perhaps with some more reason on their side, that the high exchanges, if, indeed, they are really of any benefit at all to the planters, form no less a tax, and a very heavy one at that, upon the goods consumed by the general public. Still worse, however, they act as a deterrent to active trade and commerce, since all goods sold must be marked-up at higher prices than are customary, with the very natural result of a smaller consumption. Thus, the public are disappointed, the merchants are grumbling, the revenue of the country in its Customs-houses suffers, and the railway and its shareholders are left lamenting—all because the planters must be humoured.

This contention might also contain a little more force were wages to advance in the same ratio as the rate of exchange. But this is far from being the case, for no advance in wages has followed upon the increased premium upon drafts on London; while bankers of Salvador, on the other hand, declare that they derive no profits on balance from their exchange account. More often than not, so they say, they suffer a loss, since the fluctuations in the rates are so eccentric and so difficult to control that they are particularly favoured when they succeed in covering the cheques or short-dated drafts, which they issue on Europe by purchases of ninety days' drafts from the planters, without actually incurring a loss.