File No. 814.51/225.
I think there is very little by way of comment that I can add to the
several telegrams on this subject which I have already had occasion to
despatch, but I venture to say that while I did not feel very sanguine
of the Foreign Office’s consent to support the proposed loan agreement,
the disposition Sir E. Grey showed at the interview [Page 566] I had with him on the 16th instant had led
me to hope for an answer somewhat different from the one he gave me
yesterday; and even at yesterday’s interview I got the impression that
the conclusion he expressed had not been arrived at on the merits of the
loan agreement scheme alone or entirely on his own judgment. * * *
[Inclosure.]
Memorandum from the British Foreign Office.
His Majesty’s Government have had under careful consideration the
arguments advanced by the State Department in favour of a scheme for
the conversion of the Guatemala debt by means of a loan to be issued
by United States bankers.
In the opinion of His Majesty’s Government the case for the British
bondholders is a particularly strong one. The 1895 loan, in which
was included the whole of the internal as well as the external debt
of Guatemala then outstanding, was issued on the security of the
coffee duties, which were assigned by the loan contract for the
service of the debt. Shortly after the issue the Guatemalan
Government arbitrarily withdrew the security and for the past
fourteen years have paid no interest at all in spite of the fact
which appears from the figures supplied to the State Department by
Messrs. Seligman & Company that the average receipts from the
coffee duties for the last ten years would have sufficed to pay the
interest nearly three times over.
The bondholders however being unable themselves to obtain any
satisfaction have placed their interests unreservedly in the hands
of His Majesty’s Government with the request that His Majesty’s
Government will sustain their right to the restitution of their
security.
His Majesty’s Government having failed to secure such restitution by
means of direct negotiations with the Guatemalan Government invoked
the good offices of the United States Government to move the
Guatemalan Government to refer the matter to arbitration. To this
request the United States Government at first showed a disposition
to accede, and a strong note was addressed by the State Department
to the Guatemalan Government. Subsequently however the State
Department have assumed a different attitude and they now require as
a condition of their assistance that the British bondholders should
agree to join in a conversion scheme which certain United States
financiers are endeavouring to persuade the President of Guatemala
to conclude.
In regard to the proposed scheme it should be noted that the offer
which the bondholders are invited to accept is not a firm offer but
is conditional upon the assent not only of the President, but also
of the Congress of Guatemala being obtained. Moreover, if the
bondholders were to adopt this scheme they would be renouncing the
clearly defined position they at present occupy, in which they are
sustained by every principle of legal and moral right. In this
connection His Majesty’s Government are bound to remember the
failure of a similar scheme in Honduras when the British bondholders
were induced to abandon an agreement concluded by them with the
President of Honduras, since which time they have received no
payments at all.
His Majesty’s Government are aware that the proposed conversion is
not regarded with favour by Guatemalans in general nor by the
President in particular, since the loss of control of the national
finances would deprive the latter of the means of defraying the
expenses incidental to his conduct of the affairs of his
country.
Ever since the first conversion proposal was made by United States
financiers some three and a half years ago the President has done
all in his power to evade either having to conclude an agreement or
to refuse point blank to do so. His success so far has been
remarkable and it is highly improbable that he would at this moment
give up a point which he has contested with such pertinacity. His
encouragement of the scheme proposed by the United States financiers
is therefore presumably due to his apprehension that His Majesty’s
Government intended to press the claim and to his desire to prevent
it from receiving [Page 567] any
support from the United States Government, and is in itself no
guaranty that the scheme will be carried into effect. The State
Department indeed assert that the attitude of His Majesty’s
Government and of the bondholders is preventing the conclusion of
the agreement, but it is important to note that in none of the
previous negotiations extending over three and a half years had it
been thought necessary by the United States Government to consult
the wishes of the British bondholders at all, or has it been
suggested that its success depended upon their consent. After the
experience in Honduras it would not be reasonable to place upon
British bondholders the responsibility for failure of similar
schemes.
In these circumstances, and in view of the fact already explained to
the United States Government, that it would be entirely contrary to
the practice of His Majesty’s Government to recommend to the
bondholders any form of financial arrangement affecting the value of
their bonds, His Majesty’s Government, whilst deeply regretting that
the United States Government feel unable to join them in requesting
the Guatemalan Government to refer the question to arbitration, have
no option but to adopt such measures as may be best calculated to
obtain satisfaction from the Guatemalan Government.
If it is decided to publish the correspondence on this subject, His
Majesty’s Government will not fail to refer to the United States
Government in due course any communications which have been received
from them, and which it may be desired to include in the Blue
Book.
His Majesty’s Government very much regret that they are unable to
urge the bondholders to agree to the scheme proposed by the United
States Government, especially as the United States Government is so
much in favour of it, but they cannot for the reasons given above
share the hopes of its success and ask the bondholders to abandon
even temporarily the claim to the restitution of the coffee duties,
to which they are clearly entitled.
Foreign Office,
January —, 1913.
