The Minister in El Salvador ( Corrigan ) to the Secretary of State

No. 126

Sir: With reference to Department’s instruction No. 47 dated November 22, 1934 and Legation’s despatch No. 107 of November 30, [Page 278] 1934, I have the honor to report that Mr. Fred Lavis called on me on December 4th to inform me of his arrival. He stated that he held power of attorney from the Bondholders Protective Committee for El Salvador bonds. He informed me of his intention to begin negotiations with Salvadoran Government either to extend the present temporary agreement which expires December 31, 1934 or to make a new agreement for payment of service on the loan. I discussed the situation with him as directed by the Department and gave him the benefit of the Legation’s information in the matter. Mr. Lavis called frequently after that and kept the Legation informed as to the status of his negotiations. He told me that Mr. Armstrong representing the British Bondholders had come over from Guatemala to aid him in the negotiations. He also furnished copies of his correspondence with the Government, which copies are on file in the Legation.

On Monday December 17th Mr. Lavis called on me to inform me that his various conversations with the Minister of Hacienda of El Salvador had produced no results, and that Mr. Armstrong had gone back to Guatemala leaving in his hands the representation of the British interests. He had made various propositions none of which had been either accepted or refused. He stated that he was leaving by Grace Line Steamer on Saturday December 22nd without having accomplished his objective. I told him I would consider whether another informal approach by me to Minister Araujo could be of any help and if I decided that it might, I would call upon him. After careful consideration I felt that another call upon the Minister for Foreign Affairs would be compatible with the Department’s instruction No. 39 of October 19, 1934.

The following morning I made an appointment with the Minister for Foreign Affairs, Doctor Araujo. When I arrived for the interview Subsecretary Doctor Arturo Avila was also present. I emphasized the fact that my visit was a friendly one and in no sense official but I felt that it might be worthwhile to discuss some features of the failure to reach an agreement about the loan contract. I pointed out the undesirability of the publicity that would undoubtedly be given to Mr. Lavis’ failure to reach an understanding and the prejudicial effect that it would have upon Salvadoran credit.

I discussed some provisions of the offer which Mr. Lavis had indicated would be satisfactory and pointed out the advantages which might accrue to Salvador by taking advantage of them.

Doctor Araujo then asked me if I would mind going with them to the President so that they might put the matter before him in the same light. I consented, insisting upon the entirely informal and unofficial status of our visit. The matter was then laid before President Menendez [Martínez] by Doctor Araujo in substantially [Page 279] the manner detailed above. The President listened and without making any commitments said that he would call in the Minister of Hacienda and take the matter up with him.

Doctor Araujo and Doctor Avila both assured me after we left the President that they were quite sure that the matter would be arranged.

The following morning the Minister of Hacienda, Doctor Menendez Castro, called upon me at the Legation and gave me a long explanation of his position, the great losses from the recent hurricane, the necessity for heavy expenditures in the interest of public order, etc. I expressed my regrets at his failure or inability to reach an agreement with Mr. Lavis and tried to turn his mind toward the advantage that would accrue to Salvadoran credit by coming to an understanding with Mr. Lavis, now representing both British and American Bondholders.

I apprised Mr. Lavis and Mr. Renwick, the local representative of the loan, of these informal conversations with Government officials. They then decided to re-open negotiations in the hope that Mr. Lavis would not have to go home without having reached an agreement.

I am pleased to report that the later negotiations were successful. Mr. Lavis called at the Legation this morning on his way to the boat and informed me that after considerable discussion and some minor changes the final draft of an agreement between the Government and himself for the Bondholders Protective Committee was signed this morning.

The new agreement is also temporary. It provides for a complete discussion of the entire Contract beginning in March of 1935. It also states that a concession in interest rates will be part of the new agreement and that its provision will be retroactive and effective from December 31, 1934, the date of expiration of the present agreement. A copy and translation will be forwarded by next airmail.63

Respectfully yours,

Frank P. Corrigan
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