The Secretary of State to American Diplomatic and Consular Officers in Latin America and Mexico

Diplomatic Serial No. 2661

Sirs: There is transmitted for your information a copy of a typical letter setting forth the Department’s policy with respect to defaulted foreign securities held by American citizens.

Very truly yours,

For the Secretary of State:
Sumner Welles

Copy of Typical Reply to Bondholder of Defaulted Foreign Securities

Sir: The receipt is acknowledged of your letter dated February 12, 1936,1 requesting information concerning the action which the Government of the United States has taken with regard to the payment of obligations by the Governments of Chile and Colombia on their respective external debts.

It is the long-established policy of this Government to consider difficulties in regard to foreign securities as primarily matters for negotiation and settlement between the parties directly in interest, acting through agencies of their own. The Department of State, within its function of protecting all American interests in foreign countries, is glad to facilitate such discussions when it appropriately can and to take such other action, usually informal, as it finds proper and advisable in the varying circumstances to assist in obtaining due consideration of the interests of American investors.

In this connection, I may refer to the fact that the Administration in the fall of 1933 encouraged the bringing into existence of the Foreign Bondholders Protective Council,2 with a view to providing [Page 150] a disinterested and nonprofit organization to protect the interests of the numerous and scattered holders of defaulted foreign securities. The Council which has offices at 90 Broad Street, New York, New York, functions entirely independently of the Government and reference to it is made without responsibility on the part of the Department.

With special reference to the Chilean debt situation, it may be stated that during the past year the Council held conversations in New York with the Chilean Special Financial Commission, which came to New York to explain to American bondholders the scope of Chilean Law No. 5580, of January 31, 1935, governing the service on the external loans of that country. It is understood that the Council has made representations to the Chilean Government in an effort to obtain an equitable settlement of its dollar bonds in default. Undoubtedly the Council would be glad to furnish you with information regarding its recent efforts on behalf of American holders of Chilean dollar bonds.3

With reference to the bonds of the Colombian Government, the Department understands that preliminary studies are being made looking toward negotiations for the adjustment of Colombia’s funded external debt. You may wish to communicate directly with the Council with a view to obtaining further information.4

With regard to your request for information concerning the future outlook for economic and political conditions in Chile and Colombia, I regret to state that the Department cannot undertake to make any prediction with regard thereto.

Very truly yours,

For the Secretary of State:
Laurence Duggan

Chief, Division of Latin American Affairs
  1. Not printed.
  2. See Foreign Relations, 1933, vol. i, pp. 934 ff.
  3. See Foreign Bondholders Protective Council, Inc., Animal Report, 1936, pp. 202 ff.
  4. See ibid., pp. 269 ff.