835.51B861/76
The Ambassador in Argentina (Bliss) to the Secretary of
State
No. 1940
Buenos
Aires, January 19, 1933.
[Received January
30.]
Sir: With reference to the Department’s
telegraphic instruction No. 5 of January 13, 5 p.m., concerning the
proposed plan of the Minister of Finance of the Province of Buenos Aires
for the suspension of the payment of the sinking fund and the reduced
payment of the interest on its foreign debt, I have the honor to report
that I took occasion to discuss this matter informally again with the
Minister for Foreign Affairs yesterday afternoon.
For the information of the Department, I beg to enclose a copy of a
memorandum of my conversation with the Minister, and also a copy of a
memorandum of a talk on the same subject this noon with Dr. Indalecio
Gómez, the Provincial Minister of Finance, who came to see me,
apparently after having been called to see the Minister for Foreign
Affairs following my conversation with him yesterday.
From what Dr. Gómez said to me, as set forth in my memorandum of our
conversation, it will be seen that he had decided to put into effect his
original plan as the only justifiable course the Province can pursue in
protecting its own interests and those of the holders of its bonds.
Although I confess that I felt the Minister has some justification in
the arguments he set forth, I protested strongly to his plan on the
grounds of discrimination against American holders of the Provincial
bonds. Both to the Minister for Foreign Affairs and to Dr. Gómez, as
will be seen from the enclosed memoranda, I emphasized the consideration
conveyed in the Department’s said telegram
[Page 774]
of January 13. Dr. Gómez, however, feels that the
American bondholders should take consolation in the fact that they are
being paid anything and that after all the Province is only postponing
the total payment of its obligations, giving the bondholders due
compensation in the form of promissory notes at five per cent, for the
portion of the payment of interest which is not discharged at this
time.
In extenuation of the Minister of Finance, it is only just to point out
that whereas I think he was ill-advised in presenting the American
banking corporations with a fait accompli instead
of consulting them at the same time he did the European bankers, the
financial situation of the Province, if not desperate, is very serious
and presents problems for solution of as difficult a nature as those
confronting the financial authorities of many other Governments
throughout the world. Nevertheless, I have endeavored to persuade Dr.
Gómez to change his plan to one which would not place the Argentine
authorities in a position of being accused of discriminating against
American holders of the Provincial securities and regret that I have not
been successful in bringing this about.
Respectfully yours,
[Enclosure 1]
Memorandum by the American Ambassador (Bliss) of a Conversation
With the Argentine Minister for Foreign Affairs (Saavedra Lamas), January
18, 1933
In calling on the Minister for Foreign Affairs by appointment this
afternoon, I told him that I felt obliged to speak to him
unofficially again regarding the payment of loans by the Province of
Buenos Aires which subject I had discussed with him a short time
ago. The Minister here interrupted to say that he talked with Doctor
Indalecio Gómez following my first conversation and had suggested
that Doctor Gómez see me and asked if he had been to call since
then, to which I replied in the negative.
I then told the Minister that the Provincial Senate had passed the
bill presented by Doctor Gómez whereby he would be authorized to
make arrangements with the holders of the provincial bonds for a
method of payment, the terms of the bill being of such a general
nature that the Provincial Finance Minister had considerable
latitude in the matter. My information, I said, was to the effect
that the Chamber of Deputies of the Province would in all
probability pass the bill today or tomorrow.
I further explained that I was informed that the Minister intended to
put through the plan which he had outlined to me which, as I had
[Page 775]
pointed out to Doctor
Saavedra Lamas, was distinctly discriminatory against American
holders of provincial bonds and explained that by this plan it was
proposed to pay in full 80 per cent, of the British held bonds and
the remainder, and those held by others, on a basis of the Argentine
gold peso at par, the difference which this would represent to be
covered by provincial promissory notes bearing 5 per cent, interest.
This plan would result in a loss of 12 per cent, to the British
holders of bonds not paid in full and 40 per cent, loss to United
States holders of these bonds, this difference being explained by
the fact that the American dollar was at par whereas the pound
sterling had considerably depreciated.
The Minister here said he understood that Bemberg had been
negotiating with the European holders on behalf of the Province and
asked if he had also been used for this purpose by the Province in
approaching the American holders. I told him that in so far as I
knew Mr. Bemberg had not been used in this respect for the Americans
and that the ultimate plan had been the result of negotiations
carried on by Bemberg with European holders and then had been
presented as a fait accompli to the American
bankers.
I had been informed also, I told the Minister, that there was now on
the way to New York a representative of the St. Augustine
Corporation, a British concern which, however, did not figure in any
list of bankers and financial corporations but had been empowered by
the Provincial Government to make all the arrangements and publicity
for putting this plan into effect in the United States, and added
that it would undoubtedly seem strange to the American bankers that
Doctor Gómez should send an Englishman to the United States for that
purpose instead of doing that business thru the interested American
bankers. The Minister seemed puzzled and said that he did not
understand what a British corporation should be employed for this
purpose.
He said that he of course was willing that Doctor Espil should
approach the American bankers, although it was a little delicate as
he, the Minister for Foreign Affairs, must be careful to
differentiate between national and provincial debts. I rejoined that
my position was also somewhat delicate and that my talk with him, as
I had said in the beginning of the conversation and also at our
previous talk, was unofficial but that I felt the American financial
market had demonstrated its desire to respond in a large way to the
financial necessities of Argentina, that the record of Argentine
Government authorities was held in high esteem in the United States
where the conception of its justice had merited every confidence;
and that therefore the Argentine authorities had a particular
interest in seeing that these appreciations should not be prejudiced
in the United States by an arrangement so discriminatory as the
proposal of Doctor Gómez was when the same
[Page 776]
ends could be obtained without that
discrimination, and I added that he would realize that in talking to
him in this way I had at heart Argentine interests as well as those
of my own compatriots and felt that it was of serious importance to
the financial credit of Argentina that the charge of discrimination
should not be allowed to arise.
The Minister rang for his secretary and told him to telephone to
Doctor Indalecio Gómez that he wanted to see him sometime today at
his convenience and told me that he would go over the matter
thoroughly with the Provincial Minister of Finance.
R[obert] W[oods] B[liss]
Buenos Aires
, January 18, 1933.
[Enclosure 2]
Memorandum by the American Ambassador (Bliss) of a Conversation
With the Minister of Finance of the Province of Buenos
Aires (Indalecio Gómez), January 19, 1933
At his own request, Doctor Carlos Indalecio Gómez, the Minister of
Finance of the Province of Buenos Aires came to see me at noon
today. He said that Doctor Saavedra Lamas had told him I had
discussed with him yesterday afternoon the matter of the payment of
the provincial foreign loans, which subject he and I had talked
about some weeks ago.
Doctor Gómez said that it was now decided to discontinue,
temporarily, payment of the sinking funds on the foreign debts and
to pay the interest on the bonds under the arrangement which he had
already explained to me. To this I rejoined that I perfectly
understood that in this time of depression the Provincial
authorities found themselves faced with so serious a problem that it
was necessary to seek a new arrangement with their debtors, but that
I had felt obliged, when I learned that the authorization he needed
for this purpose was practically granted by the Provincial
Legislature, to take up again with the Minister for Foreign Affairs
the subject and to express unofficially my ardent regret that the
Provincial authorities still insisted upon putting through an
arrangement which was a discrimination against American holders of
the Provincial loans. I then pointed out, as I had to Doctor
Saavedra Lamas yesterday, the nature of this discrimination.
Minister Gómez explained that the principal British loan, which it
was proposed to pay in full, was one originally for about eleven or
twelve million pounds contracted in the last decade of the last
century on which, at a time of financial stress, the Province had
been obliged to suspend all payment during a period of fourteen
years, at the end
[Page 777]
of which
the loan was funded, the interest being reduced from the six to
eight per cent, it bore before to 3½. The loan had now been reduced
to slightly more than £7,000,000 and in view of the long period of
non-payment and the reduction in the interest, it only seemed just
and equitable to him that the interest on this loan should now be
discharged in full, although the suspension of the amortization
represented a serious loss to the holders. The other loan, the
interest of which was to be paid in full, he explained was a small
one amounting roughly to a million pounds. And he further argued
that the suspension of the amortization was more damaging to
European holders than to American holders because the Province was
further ahead in its payments on the sinking fund in America than in
Europe. He admitted that the present arrangement gave a higher
percentage of payment to the European holders, especially the
British, but remarked that they were being paid in depreciated
pounds which, while perhaps not serious from an internal point of
view, had its disadvantages from an international point of view, a
justified consideration since the matter had to do with
international loans. He stressed the point that although the
Americans might lose at present 40% of interest payment under the
proposed arrangement, they would actually be paid in full, a matter
for congratulation in these days since the Province in issuing
promissory notes for the 40% unpaid, showed its bona fide intention
of eventually liquidating the loan in full.
He discussed the matter in detail again and when he had finished I
said I felt it was most unfortunate that an arrangement had been
made with the European countries and then presented to the American
bondholders and that the arrangement which he was going to oblige
them to accept might hurt the credit of Argentina in the United
States where the financial market had shown its desire to respond
most generously to the financial necessities of Argentina and where
the record of the Argentine authorities was held in high esteem,
meriting every confidence and that therefore he, as well as the
authorities of the National Government, had a particular interest in
seeing that these appreciations should not be prejudiced in the
United States by an arrangement so discriminatory as the one he
proposed, especially when the ends he sought could be obtained
without that discrimination.
Doctor Gómez said that his desire was to be as fair in every way as
possible (and parenthetically that the Provincial authorities were
cutting salaries and reducing expenses) but that with the
possibility of fluctuation of the value of the peso he saw no other
way out of the present difficulty than the one which he had decided
to follow. If the value of the dollar should fall, as seemed to be
possible were the desire of many Americans to become effective, the
American holders
[Page 778]
of the
Provincial bonds would benefit accordingly,—an argument, I told him,
which did not counteract the objections I had raised.
He then turned to the matter of sending a representative of an
English house to New York to make arrangements for the putting into
effect of his plan (of which I had spoken yesterday afternoon with
the Minister for Foreign Affairs). He explained that if Mr. Muller,
the representative here of the American financial interests, had
previously told him frankly, as he had done two or three days ago,
that while his principals could not accept his proposal, they were
nevertheless, disposed to help him in putting it into effect, he
would never have taken steps to have this done by the representative
of a foreign house. I pointed out that I thought Mr. Muller could
not have made this suggestion at an earlier date because, had he
done so, it could easily have been interpreted as a disposition on
the part of the interested American financial houses to accept the
proposal to which they had consistently offered strong objection.
Doctor Gómez then read me a telegram from one of the American
corporations, informing him that the American law would not permit
of a foreign house taking the steps necessary to put his plan into
operation and suggesting that he employ for this purpose the law
firm of Sullivan and Cromwell. I told him this was a very reputable
and reliable firm with branch offices in London and Paris and with a
representative in Buenos Aires, and, after we had discussed the
matter somewhat further, he intimated that he would probably make
use of this firm and seemed interested to know that it had a
representative here whose name I told him was Mr. Braxton and
offered to give him his address. To this he demurred saying he would
get in contact with him himself.
Before talking with Doctor Gómez, Mr. Muller came to see me at his
own request but shed no new light on the subject except to tell me
that all four of the interested American financial corporations had
advised Doctor Gómez by cablegram to employ the firm of Sullivan and
Cromwell.
Buenos Aires,
January 19,
1933.
