Papers Relating to the Foreign Relations of the United States, 1927, Volume I

863.51/840

The Minister in Austria (Washburn) to the Secretary of State

Vienna, September 20, 1927.
[Received October 1.]

No. 1532

Sir: Supplementing my telegram No. 54 of today, 10 a.m., I have the honor to report that the Chancellor asks me officially and urgently to lay before my Government the request of the Austrian Government for an early answer to the question as to what action is necessary for the United States to subordinate its relief credit lien to a proposed new Austrian Federal Loan.

1. May the Secretary of the Treasury under authority of the Joint Resolution of Congress approved April 6, 1922, (U. S. Stat. Vol. 42, Part I, Chap. 124, page 491), subordinate the lien of the Austrian Relief Bond Series B of 1920, issued to and held by the United States of America on account of food produced [purchased?] from the United States Grain Corporation for relief purposes, to a new Austrian Federal Loan, providing such new loan matures within the twenty-five year period mentioned in the Joint Resolution just referred to; or

2. Will a new enabling act of Congress be necessary to enable the Secretary of the Treasury, in his discretion, to take the desired action?

These queries are propounded on pages 3 and 4 of my despatch No. 1508 of the 30th ultimo, to which reference is hereby made.

The reason for the Chancellor’s urgency is this: It seems to be confidently anticipated that favorable action will be taken by the Austrian Control Committee, which is scheduled to meet in London on October 11. Speedy action seems also to be awaited from the Reparations Commission. It is further my understanding, confirmed by the Chancellor, that the Relief Credit states, save the United States, have established a Relief Credit Committee composed in the main of their accredited ambassadors and ministers in London,⁷ and it seems to be expected that this Committee will act as a unit, and with a minimum of delay. These three organs just mentioned are referred to on page two of my despatch under reference.

If the Secretary of the Treasury has ample authority to act under the Joint Resolution of April 6, 1922, the Austrian Government will seek a twenty year loan to bring it within the twenty-five year period mentioned in the Congressional Joint Resolution. If further Congressional action be necessary, the Austrian Government will seek a thirty year loan. It therefore greatly desires to have its proposals definitely matured and ready for submission first to the Austrian Control Committee around the middle of October. In other words, its election for a twenty or thirty year bond term will hinge upon the answer to the question as to whether or not the Secretary of the Treasury may act under the Joint Resolution of April 6, 1922. It is recognized here that an application to Congress for a new enabling act would inevitably involve a delay which it is desired to avoid if possible. All this, of course, is predicated upon the theory that the other interested creditor nations enumerated in the proviso of the before mentioned Joint Resolution, in so far as their assent is now necessary, will take early favorable action. I am told that no difficulties are anticipated and that the way has been already prepared. In any event the attitude of the other creditor states will presently be disclosed. There is a little anxiety here, inasmuch as separate action must be taken by the United States, lest delay in Washington may result in Austria not being able to float a loan at the most propitious moment. It is represented to me that M. Dubois, the Swiss Chairman of the Finance Committee of the League, has intimated to Austrian experts that he has already broken ground with the firm of J. P. Morgan & Co., and there is a feeling of optimism here that the Morgan firm is disposed to take a large participation share in the flotation syndicate to be formed. I am not in a position to express an opinion as to whether this optimism is justified. I do know that the Austrian Minister at London, Baron Georg Franckenstein, is about to go to the United States as a guest of members of the Morgan firm (Messrs. Morgan and Lamont, as the Chancellor tells me). The story, as I hear it, is that Mr. Montagu Norman⁸ … established contacts for him with Mr. Morgan and his partners. The invitation followed. The Austrian Minister sails tomorrow, I believe, for a three weeks’ visit, and will be in the United States at an opportune moment around the middle of October, when it is anticipated that the necessary sanctions will have been obtained or assured. Franckenstein, so Dr. Seipel informs me, does not go to the United States with any power of attorney whatever. There have been printed reports this last week (the Stunde had an article on Thursday the 15th, and the Neues Wiener Journal on Friday the 16th) to the effect that an “Austrian personality”, whose identity does not seem to have been discovered, is about to sound the big New York banks in the matter of a federal loan. The Neues Wiener Journal says that negotiations are pending for a 120 million dollar loan for Austria, a 50 million dollar loan for Bulgaria and a 45 million dollar loan for Greece.

In this connection, the investment program referred to on page 4 of my before mentioned despatch No. 1508, which will be presented to the Austrian Control Committee on October 11, is herewith enclosed.⁹ This document contains:

I. An expose of the Austrian Federal Household for the years 1923–27;

II. Investment requirements for the years 1928–32;

III. An analysis of the Reconstruction Loan;

IV. A table showing the amount of bonds issued in liquidation of outstanding obligations.

This exhibit can hardly be further profitably summarized, but it should prove a useful aid to the State and Treasury in passing upon questions relating to the new proposed loan. It will perhaps be helpful in any exhaustive study of this matter, to compare annex I (Expose of the Austrian Federal Household for the year[s] 1923–27) with some of the tables given in my despatch No. 1120 of July 31, 1926,¹⁰ reviewing the Zimmermann Control. Exhibit 1 is so far a confidential document. It is not desired that any publicity be given to it before it has been submitted to the Austrian Control Committee. I have supplied a copy of it to the Commercial Attaché, and he will presumably forward it for the information of Commerce.

At the present moment it has not yet been decided whether the investment program will provisionally extend for three years or five years. The plan is drawn to cover a period of five years. It is proposed that the bonds be issued in annual instalments to cover the year’s need. If the entire loan can presently be floated at a favorable interest rate for a five year period, this course will be followed. On the other hand, if the conditions of emission are not altogether favorable, the program will be curtailed to provide provisionally for three years only, with the thought of securing later on better terms for the needs of 1931 and 1932.

I have [etc.]

Albert H. Washburn

7. See Foreign Relations, 1924, vol. i, pp. 127 ff.
8. Governor of the Bank of England.
9. Enclosure not printed.
10. Not printed.