Papers Relating to the Foreign Relations of the United States, 1923, Volume I

824.51/174: Telegram

The Secretary of State to the Minister in Bolivia (Cottrell)

[Paraphrase]

Washington, April 9, 1923—3 p.m.

7. Your telegram No. 18, April 3, noon.

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2. The Department understands that the loan contract was signed after it had been telegraphed to La Paz and had been definitely approved by the Bolivian Government with a full knowledge of its contents. The bankers have stated that the loan was not made until after a long and careful consideration of all points regarding its legality had been made, and that absolutely no doubt exists on either their part or that of their attorneys that there is any illegality. Setting aside the question of the legality of the loan, the Department would direct attention to the fact that the Bolivian Government, after having accepted and used the proceeds of the loan, would seem to be estopped from asserting now that the loan was illegal. The bankers appear to have conformed strictly to their obligations under the contract, and for the Government of Bolivia to fail to sign the definitive bonds after having issued temporary ones would be not only regrettable departure from its agreement, but ruinous as well to Bolivia’s general credit, as this course would jeopard the investments made by seven or eight thousand people in the United States who are relying on the Bolivian Government’s good faith, and would create a situation in which it would be impossible for the bankers to sell further issues for the Potosi-Sucre Railway and other purposes as provided in the trust contract, should Bolivia later fulfil the precedent conditions therein stipulated.

3. You are instructed to seek an interview immediately with the President and communicate to him the views of this Government as set forth in the foregoing statements, and impress upon him the very grave concern which this Government feels as a result of his refusal to sign the definitive bonds. You will say that this Government, speaking as a sincere well-wisher of Bolivia, recommends most earnestly and strongly that he carry out immediately the terms of the contract, and that the collapse of Bolivia’s credit would appear to be the only alternative. Impress upon him the fact that should the bankers not be in a position to deliver the definitive bonds prior to May 1, the next date of interest due, those bonds would depreciate greatly and serious losses would follow to a very numerous body of American investors who purchased them confiding in the good faith and integrity of the Bolivian Government. In addition there is reason to fear that should the value of Bolivian securities fall, it might even be impossible for a considerable length of time for Bolivia to contract other foreign loans, at least on any favorable terms.

4. The Department feels that the objections raised by the Bolivian Government are for political purposes, and that the real difficulty lies in certain local elements having been led to believe that the construction of the Potosi-Sucre Railway was provided for definitely and unconditionally in the loan contract, as is not the case.

Hughes