Foreign Relations of the United States Diplomatic Papers, 1935, The American Republics, Volume IV

816.51C39/368

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

No. 231

San Salvador, April 30, 1935.
[Received May 6.]

Sir: I have the honor to refer to my telegram No. 24, dated today,³² informing the Department that the negotiations between the Salvadoran Government and Mr. Fred Lavis, representing the Bondholders’ Protective Committee of New York in the matter of the proposed revision of the 1922 Loan Contract, have apparently reached an impasse, and asking instructions from the Department as to any action it might deem desirable on the part of the Legation.

Mr. Lavis called at the Legation yesterday and stated that the Government so far has shown no indication of a willingness to recede from its position as given in the Memorial of the Ministry of Finance dated April 2 and enclosed with my despatch No. 210 of April 12, 1935,³³ a position whose fundamental point is its demand for interest rates of 3 per cent on bonds of the “A” series and 2 per cent on those of the “B” and “C” series. The most recent communication Mr. Lavis has received from the Minister of Finance, dated April 24, includes the following paragraph:

“I close this note by informing you that we must confirm and maintain in its entirety the Memorial of April 2 as regards the interest rates, after whose acceptance by the bondholders the revision of the Contract may be begun, modifying certain clauses and giving the whole agreement the suitable legal form.”

Mr. Lavis, orally and in a letter dated April 25, has informed the Legation that he has been definitely instructed by the Committee in New York and the Council in London that these rates are unacceptable. (Mr. Lavis’ letter, and a translation of that from the Minister of Finance referred to above are enclosed³³).

The Government has also refused a suggestion advanced by Mr. Lavis that the Temporary Agreement made in May 1933³⁴ be extended for another two years, on the grounds that a further issue of deferred interest certificates would be too heavy a burden on the country.

Mr. Lavis feels that there is small hope for any change of position on the Government’s part as the result of any additional arguments or appeals he could make. He has engaged a passage to New York on the Grace Line ship sailing May 11.

The situation accordingly is now at substantially the same point that Mr. Lavis’ conversations with the Salvadoran Government on the extension of the present Temporary Agreement had reached in the middle of December 1934. In my telegram sent today I have referred to my despatch No. 126 of December 22, 1934,³⁵ explaining how on that occasion I decided that it would be compatible with the Department’s instructions, and particularly with instruction No. 39 of October 19, 1934,³⁶ for me to call on the Minister for Foreign Affairs and in an entirely informal way call his attention to the desirability of reaching an agreement with the bondholders, which, by persuading the Government to give the matter further consideration, may have facilitated the agreement which was subsequently made on December 22, 1934.

In accordance with the Department’s instruction No. 82 of March 6, 1935,³⁷ and the enclosed memorandum of a conversation held in the Department with Mr. Lavis, the Legation has exercised great care to take no part in the current negotiations, other than the action taken at the direction of the Department’s telegram No. 17 of April 5, 1935, of orally bringing to the attention of the Government and of Mr. Lavis the Department’s understanding that non-depositing bondholders would be assured of no less favorable treatment under a revised agreement than the depositing bondholders, and a comment made to Doctor Avila, Subsecretary of Foreign Affairs, in the course of an informal conversation on the Loan, on the basis of the Department’s instruction No. 80 of February 25, 1935, regarding the omission of any reference involving the American Government or any of its officials from a revised agreement.

It is the belief of the Legation that it would be desirable from the standpoint of American relations with El Salvador, and in line with the Department’s policy, if a satisfactory and permanent disposition could be made of the question of the 1922 Loan Contract. There is no certainty that any informal and friendly action the Legation could properly take would achieve this result, but in view of the belief referred to, and of the desirability of the execution of a new agreement not involving “the Government of the United States or any of its officials” (to quote the Department’s instruction No. 80 of February 25, 1935), it was decided to ask the Department for additional instructions.

Respectfully yours,

Frank P. Corrigan

32. Not printed.
33. Neither printed.
33. Neither printed.
34. Signed ad referendum April 5; final draft signed May 6, 1933, Diario Oficial, May 20, 1933, p. 1021.
35. Foreign Relations, 1934, vol. v, p. 277.
36. Ibid., p. 274.
37. Not printed; it transmitted copies of the Department’s letter of February 25 to the Bondholders Protective Committee and the memorandum of March 4 by the Chief of the Division of Latin American Affairs.