800.51 Johnson Act/3
The Assistant Secretary of State (Moore) to Senator Joseph T.
Robinson
Washington, January 31,
1934.
My Dear Senator: Attached is a memorandum
relative to the Johnson Bill1 prepared by Mr. Hackworth, the Legal
Adviser of this Department.
Yesterday afternoon Mr. Ray Stephens, President of the Foreign
Bondholders Protective Council, was here and we went over the Bill
together. He, like Mr. Roosevelt, is most anxious that the Bill be
confined to obligations to the Federal Government and that thus the
language making it applicable to debts due our citizens should be
eliminated, realizing that unless this is done there will be undesirable
obstruction to loans being negotiated in this country by dependable
governments such as that of Canada.
Notwithstanding Mr. Stephens’ doubts, I still believe that the exception
of refunding and adjusting operations would enable a citizen of this
country to take scrip, or cash and scrip, in settlement of indebtedness
due him by a nation in default to our Government. But, should you think
this should be made more explicit, there can be no objection.
I very much hope that Senator Johnson will not urge the retention of the
language that has been stricken out, since the President feels more
strongly on that point than on any other point involved.
Yours very sincerely,
[Enclosure]
Memorandum for Senator Robinson
Johnson Bill—S. 682
Some of the reasons for eliminating the phraseology in lines 4, 5 and
6 of page 2 of the bill and confining it to defaulted obligations to
the Government of the United States are that:
[Page 526]
- (1)
- At this time when efforts are being made to encourage the
commercial and other interests between the United States and
other countries, particularly Latin America, it would be
unwise to enact legislation that would probably be offensive
to those countries, as the bill as originally drafted would
undoubtedly prove to be.
- (2)
- The sweeping language of the bill would apply to countries
that are in default not by choice but by force of
circumstances over which they have no control.
- (3)
- Many of the Latin American countries that are in default
on their bonds are rich in natural resources and are
desirous of meeting their obligations but are prevented from
doing so by reason of the chaotic condition of world trade
and commerce. As this condition improves and the sale of
products increases, it is believed that they will adjust
their foreign indebtedness and that the enactment of a law
by us prohibiting the flotation of further loans would
merely serve as an irritant to the disadvantage of our trade
and commerce with them, which it is in the interest of our
country, as well as others, to encourage.
- (4)
- Moreover, such a provision, so far as regards such
countries, is considered to be unnecessary for the reason
that there is no likelihood that an effort will be made by
them to float further loans in the United States until there
shall have been an adjustment of their outstanding
indebtedness. The provision would, therefore, be regarded by
those Governments as a gratuitous affront to them.
- (5)
- One case has been brought to our attention of a single
municipality in a particular foreign country that is in
default on its obligations in a small amount, whereas the
bonds of the country as a whole and of other municipalities
therein are regarded as gilt-edge securities affording
profitable and safe investments of American capital. Yet,
with the bill as originally drafted, because of the default
of this particular municipality, the bonds or other
obligations of that Government or other municipalities
therein could not be sold on the American market. This would
be the effect but not the purpose of the bill if the words
proposed to be eliminated are retained.
- (6)
- For these and other reasons, it is believed that
legislation at the present time should be confined to those
Governments that have deliberately defaulted on their
obligations to the Government of the United States. If this
experiment shall prove to be a beneficial one, we may then,
if the circumstances seem to warrant, extend it to
obligations held by American citizens and concerns. A
further reason why the bill should not now be extended to
obligations held by private people is that such legislation
might conceivably interfere with the operations of the
Committee that has recently been organized, pursuant to
Congressional authority, to work out with private
bondholders and the debtor Governments solutions with
respect to such obligations.
