Memorandum by the Chief of the Division of Latin American Affairs (Wilson)

Mr. Fred Lavis, of the Bondholders Committee for El Salvador, came in by appointment to talk with Dr. Feis29 and with me. Mr. Lavis said that, in accordance with the terms of the temporary agreement which he had signed with the Salvadoran Government on December 21, 1934, his Committee was preparing a plan for a definitive arrangement which, under the terms of the temporary agreement, had to be submitted to El Salvador by March 15, 1935, and he was planning to go to El Salvador by airplane so as to arrive there by the 15th.

Mr. Lavis then said that his Committee had been concerned at the Department’s letter of February 25, 1935, inquiring regarding the deductions the Committee was making from payments received from El Salvador on account of the Committee’s expenses. Mr. Lavis said that the Committee had prepared a reply to the Department,29a which should be received in a day or so, advising that it was not planned to [Page 573] deduct any further sums for expenses and that the bondholders would not be charged for any further Committee expenses. He said that before proceeding to El Salvador he would like to know whether the Department’s letter, which had referred to the assistance given by the Legation in San Salvador in facilitating conversations between El Salvador and his Committee, foreshadowed any change in the attitude of the Legation toward the Committee’s efforts to reach an agreement with El Salvador.

We told Mr. Lavis that our letter had been written because bondholders had raised with us the question of the expense they had been put to in connection with the Committee’s work. We also said that, as was an open secret, at the time Section [Title?] II of the Securities Act30 had been passed, this Department had opposed putting the title into effect because of the unfortunate effect it would have had on our foreign relations. In taking this position, the Department had, of course, assumed some responsibility for seeing that the terms which private protective committees imposed on the bondholders were not unduly onerous and that the bondholders’ interests were adequately protected. With such ideas in mind, we had been following very closely the activities of all the bondholders’ committees. The foregoing, therefore, together with the fact that our Legation in San Salvador had lent informal efforts to facilitate discussions between this Salvador Committee and the Salvadoran Government, had made it appear to us as necessary to obtain the information requested in our letter.

Mr. Lavis said that he agreed entirely that the Department was entitled to have such information. He said he knew that the Committee had been criticized for allegedly high expenses in the past, but he pointed out that there had originally been two committees both employing “eminent” counsel, and that counsel fees had been by far the largest item of expense, the fees paid members of the Committee being “unimportant”. …

Mr. Lavis reiterated that there would be no further expenses for the bondholders to pay; that the Committee had sufficient funds on hand to cover any expenses remaining to be paid; that under the new definitive agreement funds would be transmitted by the Salvadoran Government direct to the Paying Agent in New York and not through the Committee; and that the Committee did not intend to deduct the one percent nominal value of the bonds as it was entitled to do under the Deposit Agreement before turning the bonds back to the holders (he said that if the letter, when received from the Committee, does not make this point clear, he will address a supplemental letter to the Department). Mr. Lavis said that the Committee does not [Page 574] expect to disband right away; they believe it advisable to maintain their existence for two years or so in order to watch the situation. He said that efforts were being made by a banking house in New York to float a refunding loan for El Salvador at two percent, and the interests of the bondholders would seem to require that the Committee remain in existence for a short time for their protection. However, the only expenses of the Committee would be for the custody of the bonds and the salary of a secretary, and these would be met from funds on hand. He said that as soon as sinking fund payments began under the Definitive Agreement in 1937, he would feel that the Committee could safely disband.

In answer to an inquiry whether non-depositing bondholders would be entitled to share in the benefits of the new definitive plan, Mr. Lavis said that it was the desire of the Committee that they should so benefit, but that there were technical difficulties regarding the registration of certificates of deposit which were not entirely clear to him, and which he could not endeavor to explain. He said, however, definitely, that the Committee did not desire to shut out any non-depositing bondholders from the benefits that would be available under the new Definitive Agreement. In answer to an inquiry from Mr. Lavis, we said to him that, on the basis of the information which he had furnished to the effect that there would be no further expense to be borne by the bondholders or further deductions from payments received from El Salvador by the Committee, we saw no reason why the Legation at San Salvador should not continue, if this appeared advisable, to facilitate informal discussions between the Committee and the Government looking to a mutually satisfactory agreement. We made it clear, of course, that the Legation could not assume any responsibility for the terms of any specific proposal, but that any informal assistance which the Minister might feel it desirable to give would be, as in the past, confined to the mere facilitation of discussions. Mr. Lavis said that he appreciated our position fully.

  1. Herbert Feis, Economic Adviser.
  2. Supra.
  3. 48 Stat. 74, 92.