823.51/183
The Ambassador in Peru (Gonzales) to the Secretary of State
[Received June 30.]
Sir: Referring to the attempted financial transactions between the National City Bank of New York and the Government of Perú, I have the honor to state for the information of the Department, that on May 21st the head of the branch of the National City Bank here called on me, said that the Government was going to draw about $800,000. accumulated interest on its gold deposit in his bank in New York and, he was afraid, was going to allow a British bank (the Anglo-South American) to handle the money; that as the deposit was in the parent bank and the parent bank had paid this [Page 664] interest, it would be a reflection on the American bank if the business of transfer were now taken out of its hands.
This appeared reasonable, and I presented the matter in a personal note which Minister of Foreign Relations Salomón, whom I saw that night when signing the Landreau Protocol,5 promised to hand the President the following day—Sunday. On Monday Minister Salomón told me the President charged him to tell me he appreciated my arguments fully and had desired to do just what I suggested, but that the terms of the American banks, as well as all the others except the Anglo-South American, were too hard to comply with, and conform to his duty to the public treasury.
The following day, May 24th, Mr. Calvin, head of the National City Branch, asked me to accompany him to the Palace as he had an acceptance from his bank on the proposal to make a 600,000 pound loan, and as he feared the British were using pressure to get this loan he wished my support. I accompanied him to the palace and on the way informed him of the President’s reply concerning the transfer of funds from New York to Lima. Mr. Calvin regretted to so express himself about the Chief-executive of a country, but declared the President’s statement totally devoid of truth as he said he had been given no opportunity to make the financial transfer.
At the palace Mr. Calvin presented a cablegram from his bank in New York in which it agreed to make a loan of 600,000 pounds, secured by the Peruvian guano tax (the income from which has been running around 150,000 pounds annually) also by the interest to be paid on the ten or eleven millions gold held on deposit by the bank in New York, and the pledge that the gold would remain there until the debt were extinguished. Mr. Calvin was charged by the New York bank to satisfy himself as to legal points. The bank agreed to pay at least four and one half percent on the deposit.
“All right”, said the President. “Let your lawyer examine into the matter; there can be no difficulties. And you may have the bonds prepared for payment in dollars or in pounds as you prefer.”
When Mr. Calvin retired, I, desiring to get to the bottom of the matter of the transfer of the interest treated of above, expressed regret to the President at his inability to give the business to an American bank. “I was exceedingly sorry” he said, “but they made it impossible for me. When we decided to draw the interest, it was necessary, in order to prevent the exchange going against us, to keep the transaction quiet and to make small drafts. I directed the treasurer to present a draft for $25,000. to Mr. Calvin’s bank first, and then to try other banks. The best offer he could get from any of them except the Anglo-South American was to sell us Peruvian pounds at $4.20 when the quoted market that day was $4.00 [Page 665] or less. I made a very satisfactory transaction through the British bank”.
Later, in explanation to me, Mr. Calvin stated that when the treasury offered him New York exchange the market was in a nervous condition and he answered that he was “not interested”.
Four days after the President had accepted the proposition made by the National City Bank, the representative of the bank here informed me they had encountered an obstacle in the fact that the government could not guarantee leaving the deposit in New York for any stated period, as the Lima banks could, under the law, require the return of the gold to Perú if conditions demanded it, and that while such call was improbable, in the next few years, it was possible. And, he said, that while the tax on the guano had produced 150,000 pounds annually, or 25 percent a year of the loan asked for, it would very probably decrease. I pointed out that even without the interest on the gold deposit, which would amount to a half million a year and without the advantage of an American bank holding the gold so long as it was in a foreign country, the guano tax, should it decrease thirty-three and one third percentum would pay eight percent interest and pay the principal within nine years.
On June 1, eight days after I had accompanied Mr. Calvin to the palace, the President sent for me to say that the National City Bank had not responded; that he could not understand their extraordinary timidity. Because of its apparent desire to negotiate with him, and in his wish to deal with an American bank he had lost several weeks of valuable time; that the Banco Mercantile of New York had indicated interest in a loan, and he would now give them a chance; if they did not respond, he would be forced to put himself in the hands of the English who had been making insistent advances for weeks past.
. . . . . . . . . . . . . .
Mr. Hill, Manager of the Banco Mercantile (allied with the Guaranty Trust Company) visited the President with a proposition for a loan on the evening of June 1st. They seemed to be agreed on the essentials, according to Mr. Hill, and he cabled his New York bank. After two more cables asking for reply, the bank cabled on June 10th, that it must have a deposit equal to the loan during the life of the loan. According to Mr. Hill, he had thoroughly explained to the New York bank before that bank made its original offer, the legal impossibility of the Peruvian Government’s guaranteeing a deposit in New York for any fixed period. He could not understand this exaction, and was afraid the President would doubt his good faith. He cabled the bank again, but on this date, June 15, has had no reply.
I have [etc.]