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

No. 1940

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,

Robert Woods Bliss
[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]

[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.

R[obert] W[oods] B[liss]