File No. 814.51/196.
The Department is most anxious that the program proposed therein should
be accepted by the British Government. You are accordingly instructed to
avail of the first opportunity to explain the matter to Sir Edward Grey.
In so doing you should emphasize the following points:
The British Government may feel inclined to press the bankers for even
more favorable terms for the bondholders, arguing that the back interest
on the debt amounts to almost as much as the principal thereof. When the
British Embassy raised that point at the Department it was pointed out
that no matter what steps might be taken there seemed no way for the
bondholders to recover the back interest, whereas the carrying out of
the American plan should definitely assure to the bondholders the
payment of the future interest.
When the American bankers telegraphed to the Secretary of the Council of
Foreign Bondholders some weeks ago the only reply they received was to
the effect that as the matter had been placed in the hands of the
British Foreign Office the Council could entertain no outside
proposals.
The Secretary of State
to the British Ambassador.
[Inclosure.—Memorandum]
While the Government of the United States recognizes that the
grievances of the British bondholders against the Government of
Guatemala are just, it feels that the interests of the bondholders,
of Guatemala, and of the United States,
[Page 509]
will be best served not by the restitution of
the coffee revenues to the service of the debt but by the early
conclusion of the loan negotiations into which reputable American
bankers have entered with the Government of Guatemala.
The present situation is unsatisfactory for both Great Britain and
the United States, and while the Federal Government desires to aid
the Government of Great Britain to safeguard the interests of the
British bondholders, it wishes to do so in a manner promising the
permanent satisfaction of the bondholders and calculated to effect a
definite cure of a troublesome situation to the benefit of all the
parties concerned, namely the bondholders, the large foreign
commercial interests, the people of Guatemala and the interests of
the United States rather than to the benefit of the bondholders
alone. In the light of past experience it is felt that merely to
secure the restoration of the revenues in question would offer no
guaranties of permanency or the non-recurrence of the present
situation, which has arisen through a disregard on the part of
Guatemala of pledges exactly similar to those which the Government
of Great Britain now seeks to have renewed. If the Government of the
United States is asked to assist the creditors of Central American
states, it feels that they should be willing to consider favorably
whatever equitable assistance it is most convenient for the United
States to render them.
The Federal Government, however, must consider not only the interests
of the foreign bondholders but also the general situation which
involves, in addition to the bondholders, its own important
interests and its convenience, as well as the future of Guatemala
and her people. As the Embassy was informally advised through Mr.
Kerr, this Government takes the keenest interest in the consummation
of a loan involving a broad plan for the financial rehabilitation of
Guatemala, provided it equitably disposes of the British claims now
being pressed upon the Government of Guatemala and is duly
considerate of American and other pending claims. Mr. Kerr was also
informed that the Department of State would suggest to the American
bankers that they immediately cable their representatives at London
to lay before the British interests concerned the outline of their
plan so far as it concerns those interests and to seek a tentative
agreement whereby those interests will be satisfied.
This the American bankers at once did, thus creating a situation very
different from that described in the British Embassy’s note of
November 13th as having occurred in the past, wherein it is stated
that after previous negotiations had failed, it had been
subsequently learned that the terms which it was proposed to lay
before the British bondholders were most unfair. The terms now
offered by the bankers to the bondholders appear to the Government
of the United States to be not only reasonable but more advantageous
to the bondholders than the restitution of the coffee revenues would
be.
According to the information of the Federal Government, the American
bankers have offered the bondholders at par of their present
holdings new 4% bonds to an amount equal to the principal of the old
debt; the new bonds to be a part of a larger issue in connection
with the refunding of the entire debt of the country and, through
the establishment of a bank, replacing the present fluctuating and
unsecured paper currency by one on a stable metallic basis. The new
bonds would be secured by all the customs revenues. The customs
would be administered by an agent to be named by the bankers, the
duties being payable only in customs certificates which the agency
alone may issue. These provisions of the proposed arrangement would
seem to guarantee the regular payment of the interest on the new
bonds and to insure the maintenance of their market value at a
corresponding level, as the customs revenues are thus payable
directly to the banker’s agent and not merely pledged.
The Federal Government is convinced that the carrying out of such a
comprehensive plan for the financial rehabilitation of Guatemala
would materially benefit the bondholders and that it would be of the
greatest advantage to Guatemala as well as to British and general
commercial interests in that republic. In this view it would be the
more surprising and regrettable if the apparently uncompromising
attitude of the British Government, which is attributed to
discouragement due to the repeated past delays on the part of
Guatemala, should be definitely maintained.
The Government of the United States feels that the prospects for the
early consummation of the loan would be excellent if the Government
of Great Britain would cooperate for a short time with the United
States in its present attempt to rehabilitate the finances of
Guatemala. The bankers have stated that they prefer not to continue
their negotiations with Guatemala until they have reached an
agreement as to the terms that would be satisfactory to the
[Page 510]
British bondholders; and
it is confidently believed that if the British Foreign Office would
expedite an agreement between the American bankers and the British
bondholders as to the terms to be accorded the holders of the
present bonds, the two Governments would then be in a position
effectively to work together. The Federal Government would, after
the conclusion of such an agreement, be glad to use its best efforts
to cause the lean agreement to be signed by the Government of
Guatemala within a reasonable time thereafter, say fifteen days, and
to be ratified within thirty days after signature, provided that the
National Assembly should be in session during this period, and, if
not, then within thirty days after the date for the opening of the
next regular session.
If, under the circumstances above outlined the Government of the
United States should not secure that result within such period it
would then be prepared at once to support the demand of Great
Britain for the restitution by Guatemala of the coffee revenues to
the service of the foreign debt.
P. C. Knox.
Department of State,
Washington
,
December 3, 1912.
