835.51B861/128
The Ambassador in Argentina (Weddell) to the Secretary of
State
No. 853
Buenos
Aires, August 29, 1935.
[Received
September 9.]
Sir: Supplementing the Embassy’s telegram No.
192 of August 28, 4 p.m., I have the honor to enclose, as a matter of
record, a copy of a letter which by my direction the First Secretary of
the Embassy handed the Under Secretary of Foreign Affairs on August 28,
regarding the negotiations between the Minister of Finance of the
Province of Buenos Aires and the Foreign Bondholders Protective Council
for refunding the American debt to that Province. Dr. Ibarra Garcia is
temporarily in charge of the Foreign Office, the Minister of Foreign
Affairs having left Buenos Aires for the country for a ten days’
holiday.
In an informal conversation with Dr. Ibarra Garcia Mr. Cox pointed out
the viewpoint of the Foreign Bondholders Protective Council that the
offers so far made by the Provincial Minister of Finance to the American
bondholders did not appear to be as liberal and equitable as that made
to the other creditors of the Province, that the Council desired to be
helpful and only awaited an offer from the Minister of Finance which it
could recommend to the bondholders for their acceptance, and that
pending the reaching of such an agreement, it was most desirable that no
unilateral action be taken by the Province’s financial authorities. Dr.
Ibarra Garcia promised to give the matter his prompt attention and,
after consulting with his advisers in the Foreign Office, to see what
might be done.
Mr. Cox also told the Under Secretary of the informal meeting which the
Embassy’s Commercial Attaché had arranged with the Province’s Minister
of Finance but which had been postponed by the latter.
[Page 288]
There is also enclosed a copy of a telegram24 dated August 23 which Señor Lariviere, who is
negotiating in New York with the Foreign Bondholders Protective Council,
sent to his principals, Bemberg y Compañía, banking intermediaries
acting for the Province. A copy of this telegram was obtained by the
Embassy’s Commercial Attaché from Bemberg y Compañía and should be
considered confidential.
Respectfully yours,
For the Ambassador:
Raymond E.
Cox
[Enclosure]
The First Secretary of the American Embassy
(Cox)
to the Argentine Sub-Secretary of Foreign
Affairs (Ibarra
Garcia)
Buenos
Aires, August 27, 1935.
My Dear Dr. Ibarra García: You will
remember that yesterday when I spoke to you regarding the proposal
of the Minister of Finance of the Province of Buenos Aires to the
American bondholders for refunding the Province’s external debt held
in the United States, you suggested that I give you a memorandum
with a full explanation of this rather involved matter.
Recently the Executive Authority of the Province of Buenos Aires was
authorized by the Provincial Legislature to negotiate with the
bondholders a refunding of the Province’s public debt. Proposals
were made to the American holders of the dollar bonds of that
Province as well as to the British holders of the sterling bonds.
The proposal to the British holders, like the one to the American
holders, provides that certain revenues of the Province which will
be collected by the Federal Government under the federal law for the
unification of internal taxes, passed in December last year, will be
allocated to the service of the outstanding loans of the Province.
Mr. Luis Lariviere, representing the Province of Buenos Aires, is
now in the United States discussing the matter on behalf of the
Province’s banking representative with the American Bankers and the
Foreign Bondholders Protective Council, Incorporated.
In the offer to the British holders it is proposed that the 3 to 3½%
loan of 1906–1909 will receive the first charge on the revenues
above mentioned; that the 5% consolidation gold loan (sterling) of
1915 will receive the second charge on such revenues; and that there
will be a third charge in favor pari passu of
all the other European loans (with the exception of the 4½% Banco de
la Provincia loan of 1910, which is separately secured on the
dividends of the Banco de la Provincia) and of the American dollar
loans.
[Page 289]
It is believed by the Foreign Bondholders Protective Council that
there is no justification for according the American bonds only a
third charge on these revenues, whereas the British loans are
offered a first or second charge thereon, and that this proposal
amounts to a discrimination against the dollar bondholders. The
dollar bonds, it points out, were issued on the faith and credit of
the Province and are just as much an obligation of the Province as
are sterling and other loans, and that furthermore certain dollar
bonds had a first lien on the consumption taxes. The Council feels
the only fair way to deal with the matter is to allocate such
revenues in equal proportions for the service of all the outstanding
obligations of the Province.
In the matter of the interest proposed, telegrams are being exchanged
between the Foreign Bondholders Protective Council and the Minister
of Finance of the Province of Buenos Aires, and I understand the
Minister has slightly improved his initial offer to the American
bondholders with a graduated scale of interest. I understand,
however, that the offer is not yet considered by the Council as
equal proportionately to that offered to the British
bondholders.
In the matter of amortization, I believe there has as yet been no
agreement. As long as the negotiations between the Minister of
Finance of the Province and the American bondholders are kept open,
it is to be hoped that a final agreement satisfactory to both
parties will be reached. The Foreign Bondholders Protective Council
desires to be as helpful to the Province as it can, realizing the
desire of the provincial authorities to reach a satisfactory
refunding of its external debt. At the same time, the Foreign
Bondholders Protective Council’s duty is to protect the just
interests of American bondholders, and it could not recommend the
acceptance of a proposal to the bondholders while in its view the
latter were not receiving equal treatment with other creditors of
the Province.
I think you will agree that it is desirable that no unilateral action
should be taken by the Province which would serve to terminate the
discussions but that the negotiations should be continued until an
agreement is reached satisfactory to both the Province and the
Bondholders Protective Council.
As you can see from the above, the Council, which represents the
American bondholders, is only asking for equitable treatment. It is
believed that it would recommend to the American bondholders the
acceptance of a proposal substantially the same as that made to the
holders of the sterling bonds, that is to say, an offer which would
comprise a cut of about 35% in the total service, interest and
sinking fund, the full service of the sinking fund to be resumed
after three years.
Yours very sincerely,
