The Acting Secretary of State to the Chargé in Colombia (Dawson)
55. Early in April the Colombian Government announced that because of the situation arising out of the conflict between Colombia and Peru34 and the necessity for heavy military expenditures, it would be compelled to suspend interest payments on the National Government external funded debt and the guaranteed bonds of the Agricultural Mortgage Bank. The Department fully appreciated the compelling nature of the reasons which motivated the Colombian Government in reaching this decision. It therefore felt that it should not broach the matter to the Colombian Government.
With the signing of the Geneva agreement on May 25,35 however, and the cessation of hostilities, the Department considers that the situation has materially altered. The Department therefore desires you at an early opportunity to seek an interview with President Olaya and frankly discuss with him the question of the possibility of Colombia’s continuing full cash interest payments on the National Government funded debt and guaranteed agricultural mortgage bonds. You may say that as Colombia has made great sacrifices during the last 2 years in meeting its national external obligations, it would be very regrettable if it could not carry through what may be the last stretch of the depression. Colombia has built up an enviable record for debt payment during this depression and her credit standing has consequently greatly improved relative to that of certain other Latin American countries. Should Colombia with her dispute with Peru in prospect of settlement now default on her National Government [Page 255] obligations it would be difficult for the American bondholder to understand and Colombia’s credit would suffer accordingly. The bondholder feels that Colombia’s economic situation is relatively good, that her gold reserves and favorable trade balance make it possible to continue cash interest payments, and that in view of the large percentage of Colombia’s exports taken by the United States it is only fair to expect that such payments will be made. In view of the foregoing the Department very much hopes that President Olaya will be able to make full cash payment on the coupons falling due in July.