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

Mr. R. W. Hebard, of the Salvador Bondholders Committee, called today. He stated that he had recently returned from Salvador, where he had been struck by the campaign in the Salvador press, evidently inspired by the Government, against any reasonable settlement with the bondholders. He said that reports from Mr. Lavis indicated that a virtual impasse had been reached and that the Committee had requested him to inform the Department of this and ask if the Department could not take some action in support of the Committee. He went on to say that the agreement signed last December had been proposed by the Salvador Finance Minister, Menéndez-Castro; it provided roughly for 45% of the interest payable under the 1922 loan contract during the years 1935–36, and between 65% and 70% thereafter. The Salvadoran Government, through the present Finance Minister, Señor Samayoa, now insisted it could pay no more than 3% on the A bonds and 2% on the B’s and C’s, which would mean about 40% of what the Government was required to pay under the loan contract. Salvador alleges poor coffee prices and depreciated income, whereas the governmental income is actually higher than for corresponding months a year ago. Mr. Hebard said that the Committee did not feel that on the basis of temporarily reduced coffee prices it could make a permanent agreement accepting the low figures offered by Salvador. The British Council of Foreign Bondholders was definitely of the same opinion.

I said to Mr. Hebard that’ it was the policy of this Department in these defaulted bond situations not to participate in the actual negotiations, [Page 579] leaving such negotiations to the creditors and the foreign government, but to facilitate discussions between the creditors’ representatives and the government. I recalled that last December when the Committee advised us that an impasse had been reached Dr. Corrigan had expressed to the Salvadoran Government his hope that a mutually satisfactory agreement might be worked out. This interest evinced by Dr. Corrigan had possibly been of some benefit, and in any case the December agreement was eventually signed. I told Mr Hebard that recently Dr. Corrigan had reported that the negotiations again had practically broken down; we had authorized him again to express the hope that an agreement satisfactory to both parties might be worked out. We had not heard from Dr. Corrigan as to the result of any talk he may have had along these lines with the Foreign Office, and I felt that at least for the time being, until we heard from Dr. Corrigan, there was nothing further which we could do. Mr. Hebard said that he was glad to know of the fact that Dr. Corrigan had been authorized to express interest in a mutually satisfactory settlement and he agreed that this was all that the Department could appropriately do in the matter.

I mentioned that I had seen in a recent report from Dr. Corrigan that Mr. Lavis was planning to leave Salvador by steamer on May 11, and asked if Mr. Hebard had any word regarding this. Mr. Hebard said, no, but he was certain that Mr. Lavis did not in fact intend to leave on May 11, since the Committee would have been informed.

Edwin C. Wilson