814.51/601

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

No. 1672

Sir: Referring to the Legation’s despatch No. 1661, of October 4, 1927,13 concerning the attempt of Mr. J. P. Armstrong, representative in Guatemala of the Council of Foreign Bondholders, to conclude an agreement with the Government of Guatemala concerning the payment of the Deferred Interest Coupons of the British Bonds in Guatemala, I have the honor to report that, Mr. Armstrong informed me last night that the Minister of Finance, Mr. Solares, had, with the authority of the Government, made him a verbal offer which he was now putting into a written agreement and which, he said, would be acceptable to both sides. This offer provides for the funding of the amount of the Deferred Interest Coupons by an issue of bonds paying 4% interest annually over a period of forty years. The Government will have the privilege of buying up these bonds on the open market [Page 43] in order to reduce the amount of the debt. The difference between this and the original offer of the Council of Foreign Bondholders is that the former was for a bond issue bearing 4% interest over a period of thirty years. In the new agreement, a fiscal agent, probably the Central Bank, will be appointed and the guaranty for the payment of the interest and amortization fund, which will be the same one dollar tax on every quintal of coffee exported, as provided for in the agreement of 1913, will be deposited with this agent, thus giving the Council a tangible guaranty for the payment of the bonds. Previously, although payment was guaranteed by this export tax on coffee, the money collected from this tax was never deposited with a fiscal agent.

At the beginning of each year the Government will have a right to pay in cash to the Council of Foreign Bondholders the total amount which it will owe the latter during the ensuing year. In this event, the money provided for as a guaranty will not have to be deposited with the fiscal agent. If the Government does not desire to do this, it will give to the fiscal agent a statement of the amount, which will be owed to the Council during the coming year, and the dates upon which the various sums come due. Each week the fiscal agent will receive all the money, which has been collected due to the dollar export tax per quintal of coffee, and will keep this amount until it reaches the sum owed by the Government to the Council and will pay the Council on the specified dates.

Mr. Armstrong states that, the President and the Cabinet have all finally given their consent in principle to the conclusion of this agreement and, it is hoped that it will be definitely signed within the next ten days. The agreement will not come into effect until July 1, 1928, and, it is presumed that, it will be approved by the Legislative Assembly, which convenes March 1st of next year.

I have [etc.]

Stanley Hawks
  1. Not printed.