814.51/542

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

No. 1322

Sir: Referring to this Legation’s Despatch No. 1320 of October 29, 1926,1 relative to the obligations of the Government of Guatemala to foreign creditors, I have the honor to inform the Department that the British Minister, Mr. Archibald Clark Kerr, called at the Legation on October 30, 1926, and stated that inasmuch as he had learned that Mr. Henry B. Price, the Vice President of the International Railways of Central America, had arrived in Guatemala for the purpose of collecting the debt owed his company by the Government, and inasmuch as it appeared that Mr. Price might meet with success in this matter, he wished to inquire whether there would be any objection to his cabling the British Foreign Office suggesting that the Department of State be requested to instruct this Legation to urge upon President Chacón the importance of arranging the amortization of the deferred coupons of the British bonds. Mr. Clark Kerr observed that, inasmuch as a failure to meet her obligations in respect to a debt dating from 1827 renders Guatemala a defaulting nation, he felt that the United States would wish to see this matter settled prior to the issuance of any new bonds by the Government.

I replied to the British Minister that I perceived of no reason why he should not request such action of his Foreign Office, but that without instructions from the Department, I should not be in position to assist him, even informally, in presenting his views to Guatemalan officials.

A memorandum prepared by the British Legation, a copy of which is transmitted herewith, gives a history of the British claim in outline form.

I have [etc.]

Leon H. Ellis
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[Enclosure]

Memorandum Prepared by the British Legation in Guatemala on the Four Percent External Debt of Guatemala

1. The origin of the Debt dates from 1827, when Guatemala took over 5/12 (£67,900,–) of the Six per cent Loan issued in London on behalf of the Central American Federation.

2. The loan was in default from 1828 to 1855.

3. An arrangement was made in 1856 whereby the capital and the arrears of interest were reduced to £100,000 bearing 5% interest. As a security 50% of the Customs Dues was hypothecated.

4. In 1863 a loan for £11,300 bearing 5% interest was contracted for public improvements. This loan went into default in February 1864.

5. In 1869 a loan for £500,000 bearing interest at 6% with an accumulative Sinking Fund of 3% was issued. The import duties were assigned as a security for this Loan.

6. In 1876, the loans of 1856 and 1869 went into default.

7. In 1878, one-third of the coupon due 1st April, 1876, on the 1869 loan was paid in November; no payment being made on the subsequent coupons.

8. The default continued until 1888 when the following arrangement was made:

The Bondholders accepted in lieu of each £100 Bond of the 1856 Loan with £62.1.8d. interest arrears, a new Four Per Cent bond of £144.14.0 and in lieu of each £100 Bond of the 1869 Loan, with £72.10.9d. interest arrears on a new Four per Cent Bond of £152.4.0.

The total amount of new bonds issued was £922.700.

The Internal Debt was converted upon similar conditions at the rate of £16. per $100.–The interest was payable quarterly at the annual rate of 6%. The bonds were issued in Guatemala and were introduced upon the London market in 1888. The total introduced was $6,400,000.—£1,024,000.

The 1863 loan was included in the conversion, £144.14.0. in new Bonds being given for each old bond and interest arrears amounting to £119.11.8.

9. In 1894, default took place upon both the External and the Internal Consolidated Debts.

10. In 1895 a new arrangement was accepted by the Bondholders on the following bases:

Unification of the External Debt (amount outstanding £890,300) and in internal Debt (amount outstanding $6,025,900—£964,144) into a new Four per cent External Debt for £1,600,000. The External Bonds, with arrears of interest from 1st of January 1894 to the 30th of June 1895, to be converted at the rate of £75. New for £100 Old Bonds. The Internal Bonds, with arrears of interest for the same [Page 29] period, to be converted at the rate of £75. New for each $500.–or £80–Old Bonds.

A non-accumulative Sinking Fund of £15,000 per annum was created to be applied by purchases on the market.

The Bonds were secured by a special tax of $½ gold (six shillings) per quintal of coffee exported, fixed irrevocable at this rate for 10 years, commencing 1st. July 1895, the proceeds to be paid to the Agent of the Bondholders at Guatemala.

11. The Guatemalan Government violated this contract the same year (1895).

12. In 1898 a new arrangement was concluded for three years reducing the interest rate to 2% in cash and 2% in certificates; full cash payment to be resumed on the coupon falling due 31st of December, 1901. The certificates to be exchanged for Four per Cent Bonds after the 30th of June 1901. Amortization to be suspended for three years and to be reduced from 1901 to 1908 to £6000. a year and thereafter to be fixed at the full rate of £15,000 per annum.

13. The Debt went into default in 1899.

14. From 1899 to 1913, several arrangements were concluded with the Bondholders, but the Guatemalan Government failed to ratify them. In the meantime the Guatemalan Government assigned the revenue pledged to the Bondholders to secure other obligations.

15. In 1913, through the good offices of His Majesty’s Legation, an agreement for the resumption of the operation of the Arrangement of 1895 was effected on the following terms:

1.
The Government to deliver to the representative of the Bondholders by the 1st July, 1913, Warrants for the payment of the Coffee Export Duties sufficient to cover the interest due for the year 1913–14; no other Warrants to be admitted in payment of the said duties until those intended for the service of the Debt have been cashed;
2.
In exchange for the Certificates issued under the Arrangement of 1898, the Government to issue £29,656 new Bonds of the Four per Cent External Debt, with Coupons from 31st. December, 1901, inclusive, attached;
3.
In exchange for the overdue Coupons unpaid up to 30th June, 1913, the Government to issue Deferred Certificates for an equal amount, bearing no interest;
4.
The sinking fund of £15,000 per annum to be suspended for four years from 1st July, 1913;
5.
Upon the termination of these four years the Council of Foreign Bondholders to treat with the Government as to the means of amortizing the Deferred Certificates referred to in (3).

16. The obligation of the Government under the above Agreement to resume the Sinking Fund was not fulfilled until October 1919, when the Guatemalan Government paid the two years in arrears.

17. The stipulation regarding the settlement of the arrears of interest has not yet been carried into effect.

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18. The war conditions of 1917, which reduced the revenue, and the losses sustained by the earthquakes of 1917 and 1918 were the reasons given by the Guatemalan Government for their failure to fulfil the stipulation.

19. Later on political disturbances and the urgent necessity to effect the stabilization of the currency were the grounds on which the Guatemalan Government based their refusal to open negotiations with the Bondholders for a settlement of the outstanding question.

20. In 1925, the Council of Foreign Bondholders urged the Guatemalan Government to discuss the matter, to which the Minister of Finance assented.

21. Mr. J. P. Armstrong was appointed special representative of the Council of Foreign Bondholders for this purpose.

22. The proposals of the Bondholders are as follows:

1.
The total amount outstanding to be funded immediately into Bearer Bonds of £100. each with interest coupons at 4% payable in 30 years.
2.
If the Government are unable to remit more than the interest at present (£34,000.) the Sinking Fund should be deferred for three years, in which case the annuity would be increased from 2% to 2½%.
3.
The new Bonds shall be formally guaranteed by the $1– of the Coffee Export Duties assigned for the service of the existing bonds.

23. The arrears of interest amount to £844,603.

  1. Not printed.