814.51 An 4/orig.: Telegram

The Secretary of State to the Chargé in Guatemala ( Hewes )


63. Legation’s despatch of October 9, number 412.

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You may inform Mr. Stahl or other bankers who may be concerned that the proposed loan and currency reform contract is considered by the Department to be fundamentally objectionable, and you may, in this connection, invite their attention to the statement which the Department gave to the press on March 3, 1922,2 wherein the Department requested American firms who contemplated making foreign loans to inform it in due time concerning the chief features of the loan. While the Department does not desire to discuss this project in detail, it desires you to point out to the bankers the principal serious objections which are as follows:

  • First. The contract is one-sided and absolutely unfair, because, as the Department understands it, it obligates Guatemala to exchange $8,000,000 in bonds upon which there is a service of nearly $1,000,000 annually, for three hundred and forty million pesos of new paper money in the form of bank notes which the bankers will furnish. It sets forth how only $3,500,000 of the amount of the loan is to be applied, which amount is to be employed in connection with the projected currency reform. There is no evidence that this amount, which includes the $1,000,000 capital of the proposed bank, and the $2,500,000 reserve, will become the property of Guatemala, or that Guatemala will receive the income from the bank’s capital Because of a lack of specific stipulations it appears that the banks will retain the proceeds from the bonds over and above the amount of $3,500,000.

You may point out that a proper currency reform would not obligate Guatemala to establish funds equal to the full value of the outstanding currency, but only an amount which would constitute a suitable reserve.

  • Second. The loan will impose an annual additional load of almost $1,000,000 upon Guatemala which will make her financial condition worse, especially as the contract contains no provisions for refunding the floating and the internal debts.
  • Third. The plan will not establish an adequate financial and monetary reform, but on the contrary, will make said reform even more difficult at a later time.
  • Fourth. The project seems to conflict with the lien which the British bondholders have on the export tax on coffee.

You are likewise authorized to make known the views of the Department to the proper officers of the Government of Guatemala orally. You will make it clear, however, that the Government of the United States appreciates the importance to Guatemala of a proper financial reform, and is desirous of lending every proper assistance to Guatemala to that end, but it feels in all frankness that it ought to point out the great disadvantages which the proposed plan has to Guatamala.

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You are instructed to lend no assistance to the bankers in the promotion of the above-mentioned plan.