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

No. 853

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.

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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

The First Secretary of the American Embassy ( Cox ) to the Argentine Sub-Secretary of Foreign Affairs ( Ibarra Garcia )

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.

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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,

Raymond E. Cox
  1. Not printed.