422.11G93/1727
The Minister in Ecuador ( Gonzalez ) to the Secretary of State
[Received August 14.]
Sir: With reference to the Department’s cable No. 29 of August 4, 1936, relative to the Guayaquil and Quito Railway Company bond settlement, I delivered this morning to the Under Secretary of Foreign Relations, Dr. Arroyo, my note (copy enclosed)84 setting forth said cable and requested that I be furnished information as soon as possible concerning it in order to telegraph the Department. He stated that in his opinion the plan suggested was a perfectly fair one, and one which his Government should take advantage of accepting.
I then called on the Minister of Public Works whose Ministry presides over the Railway and I gave him a copy of said note which he read. He stated that at a joint meeting held yesterday with the President by himself, the Ministers of Foreign Relations and of Hacienda, the President exhibited various letters addressed to him by the Ecuadorean Legation at Washington and other letters had between the Legation in Washington and the Ex-Minister of Hacienda. The Minister of Public Works stated that from these letters it was clearly shown that meetings had been had by the Ecuadorean Minister with the Chief of the Latin American Division, Mr. Laurence Duggan, and that the latter had stated that handbills had been unofficially sent to the various bondholders stating that the Government of the United States would not be able to make any direct representations in connection with their holdings since that was a matter for them to deal directly with the Government of Ecuador, or through the Foreign Bondholders Protective Council; also that it had been stated by Mr. Duggan that the Bondholders Protective Council was in no position to force the respective bondholders to deal through it; that it was only a voluntary matter for them to decide as to whether they would or not; and that it had been intimated by Mr. Duggan that he could see no objection to the continuation of the suit by the Government or that it would affect the interests of the bondholders either one way or another. Under these circumstances the President appeared, at the meeting held yesterday, to be determined to continue with the [Page 551] suit and further expressed the belief, basing his opinion upon the alleged opinion from the New York lawyers, that upon the liquidation of the Railway and the Government taking it over that not only all stock interests but also all the bond interests would be extinguished, as well as the guarantee made by the Government to service and/or pay the Railway bonds if in default.
In view of the foregoing, the Minister of Public Works did not believe that much could be done to change the opinion of the President in his desire to proceed but, however, he would confer further with him today as well as with the Minister of Foreign Relations and at the same time present our note of even date. He further stated that the State Department had conferred with Mr. Hewitt in the matter and that it seemed as if nothing could be done with him as he had exaggerated demands and, therefore, it was not believed that a settlement could be made in view of this obstacle; or with the British bondholders who the Ecuadorean Government understood from other sources, were dealing with the matter entirely along legal lines, and hence it was useless to send anyone to London to negotiate with the British bondholders for any amicable settlement since they would constantly bring up legal arguments and any settlement contemplated along amicable and practical lines could not be accomplished with the interjection of legal principles.
The Minister of Public Works stated that he would advise me later in the day so that I could advise the State Department.
Respectfully yours,
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