The Ambassador in Argentina (Bliss) to the Secretary of State

No. 1895

Sir: I have the honor to report that on December 7 Dr. Carlos Indalecio Gómez, Minister of Finance of the Province of Buenos Aires, called to see me, saying that he wanted to acquaint me with the [Page 767] situation of the Province in regard to its external and internal debt. In brief, this is what he told me:

Two or three months ago, the Provincial Government approached the British and French Councils of Foreign Bondholders in an endeavor to reach an agreement for easing the payment on the Provincial bonds held in those two countries, because the Provincial finances would not permit the Government to pay the sinking fund nor the full interest on its bonds. The negotiations which followed resulted in the British and French bondholders associations accepting a proposal to suspend payment of the sinking fund and a reduction in the interest on the basis of payment at par rate of exchange and the balance in five per cent, script. This arrangement, however, was not to apply to two of the British loans, one of which, the Minister explained, was a loan of long standing which during a certain number of years had received no payment of interest and which had later been readjusted at a lower interest; the other being a loan for a comparatively small amount which the Province felt itself under special obligation to pay in full.

This agreement had been then submitted to the American bankers who had negotiated loans with the Province. They had been unwilling, so the Minister said, to accept the proposal and he had come to me to know whether I could be of any help to him in the predicament in which he found himself.

I may say here that I have known Dr. Indalecio Gómez since my previous service in Buenos Aires twenty years ago when his father, one of the most distinguished and cultivated Argentines of his time, was Minister of the Interior under President Roque Saenz Peña. He is loyal, honest and desirous of finding the most equitable solution of the problem with which the Province is faced in meeting its indebtedness. I feel, however, that he made an error in discussing the question first with the European bankers and in arranging a project of payment before talking the matter over with the interested American bankers.

I explained to the Minister that these loans being private, it was not possible for me to take action in the matter, glad as I should be to assist him. The Department of State, I said, had carefully avoided expressing opinions regarding loans made to foreign countries by American citizens or arrangements pertinent thereto. From that I went on to express the opinion, however, that I felt it would create an unfortunate impression in the United States were the Province to default on its bonds, especially as it had maintained the payment of the service up to now with the resulting good reputation which the Province enjoyed in American banking and investment circles. I also [Page 768] went into other phases of the situation, which are more or less obvious, among others, the class of investors who had bought, at least in part, the bond issues of the Province, and the hardships suspension or curtailment of payment would cause them.

I pointed out, too, that the decision to pay part of the British held loans in full and the remainder under a scheme which favored the British and French holders would create the impression in the United States of favoritism and discrimination which I felt it advisable for the Provincial Government to avoid.

Two days later (the intervening day being a holiday), I went over this matter with Mr. Oscar R. Muller of the First National Bank of Boston in Buenos Aires, in whose hands the various interested United States banks have placed the negotiation of the loans to the Province of Buenos Aires. Mr. Muller explained the matter to me fully, the important point of his explanation being that there was no precedent in Argentina for the proposed arrangement of the Province of Buenos Aires to pay their indebtedness on the basis of the peso at par and the remainder in interest-bearing script; that while the American bankers felt it would be difficult to obtain the consent of American holders of Provincial bonds to any change in the terms thereof, yet should the Province not be able to meet its obligations they felt that the only fair proposal for the Province to make would be a percentage payment applicable to all alike. He pointed out that the suggestion of Minister Indalecio Gómez meant that roughly speaking about four-fifths of the British bondholders would receive payment of interest in full and that the remainder, because of the depreciation of the pound sterling, would receive slightly more than 90 per cent, of the normal payment, whereas the American bondholders, because of the depreciation of the peso, would receive only about 45 per cent, of the normal payment.

I again saw the Minister on December 10 and emphasized the main objections which had been pointed out to me by Mr. Muller and asked him why, if the Provincial Government found it impossible to pay the full service on its debt, he did not make a proposal to pay a percentage thereon and the remainder in interest-bearing script rather than pay the total at par rate of exchange (with the difference in interest-bearing script). To this he replied that he was fearful the peso might depreciate still more in relation to the dollar which would perhaps make it impossible for the Province to make payments later on at the pro rata rate which might be agreed upon.

To this I rejoined that he might make such an arrangement with the understanding that if the peso should suffer a further depreciation the Province would then have to review the whole question again with the idea of making such changes in the agreement as circumstance [Page 769] might impose. This he said had not occurred to him and he would give the idea careful consideration.

In both my talks with the Minister I emphasized the informality of our conversations and he acquiesced in the understanding that it was simply two friends talking over a difficult problem in which each was interested. As already stated, I urged him to make every effort to continue regular payment of the service on the debt.

It is my understanding that the American bankers’ points of view have now been submitted to the consideration of the French and British bondholders.

Respectfully yours,

Robert Woods Bliss