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

No. 640

Sir: I have the honor to refer to the Legation’s telegram No. 15 of March 24, 5 p.m.,30 and to previous correspondence relative to the negotiations for a resumption of payments on the foreign debt. Mr. Douglas Bradford, Secretary of the Bondholders Protective Committee, informed the Legation that the Minister of Hacienda had written him a formal letter, confirming the Government’s acceptance of the bases agreed upon. These remain substantially as enumerated in the Legation’s despatch No. 590 of February 15, 1936. Certain legal details are to be finally settled in New York. Doctor Rodrigo Samayoa, Minister of Finance, went to New York sailing Saturday March 28 on the Santa Elena as official representative of the Salvadoran Government with authority to sign a new agreement with the Bondholders’ Protective Committee bringing to a close a long series of negotiations which has been a subject of many despatches during the last two years.

It seems timely to report to the Department the co-operation given by the Legation in facilitating the negotiations. Officially, no action has been taken. The authorization of the Department to use our good offices to facilitate the negotiations (Instruction No. 150 of August 20, 193530) has been faithfully complied with, and the Legation has scrupulously avoided the appearance of taking any part in the negotiations or of making any endeavor to determine their direction.

The Legation’s position since the making of this loan, and during subsequent negotiations, was reviewed in Legation’s despatch No. 366 of August 9, 1935.30

The Legation’s position today is very different from that taken at the time of the granting of the Loan in 1922. At that time, the [Page 580] Legation’s despatches contained such phrases as “It saved much time and trouble if I prepared the proposed notes to me from the Government”, or “The proof reading and correction of the English text of the loan contract has been done by the staff of this Legation to insure accuracy when published in the Diario Oficial, which will be done today.” Also, assurances were given to the Government of El Salvador by note expressing the gratification of the Government of the United States over the completion of the Loan and the willingness of the Secretary of State on his part to carry out the stipulations in the contract with reference to him. The present under-Secretary of State of El Salvador is the same man who received these assurances, and the Bondholders Committee is made up of men who conducted the original loan negotiations. At the time the Loan was made they obtained very complete official co-operation and encouragement, whereas now they seem to find the Department disposed to keep entirely free of the matter. The Legation has tried to reflect as accurately as possible the present policy of non-intervention, being guided by Department’s instructions in this respect. The various representatives of the Bondholders Committee, on the other hand, have consistently endeavored to associate the Legation with the negotiations. This has been done in various ways: Each of the representatives has promptly reported to the Legation upon arrival in the country, frequent calls have been made upon the Minister, the Legation has been kept informed of even minor steps in procedure, copies of all correspondence between the Government and the Committee or its representative have been brought to the Legation personally by the representative of the Bondholders Protective Committee.

In a small place like San Salvador such tactics unfailingly serve to connect the Legation with the proceedings, in the minds of the Government, the press and the public. The moral influence of the Legation was an unavoidable factor, which could be positive or negative either for or against a settlement. This inevitable moral influence, which seems to predicate an inescapable responsibility was definitely thrown on the side of a settlement satisfactory to both sides. It could just as easily have been used to delay or frustrate. This inescapable responsibility extends also to other spheres.

It was deemed wise early in the present negotiations to express unofficially the views of the Minister with regard to the general subject of protection of American investors in foreign securities. Therefore, a letter was addressed to the Representative of the Fiscal Agent which, in an informal and friendly way, represented this viewpoint. This letter stated, “The matter of the treatment of American bondholders is of very general interest in the United States because these bonds are held in small amounts by thrifty individuals in many parts of [Page 581] the country. In many cases the possession of three or four government bonds such as the Salvadoran issues constitute the entire savings or capital of worthy people like teachers, physicians, clergymen, widows, et cetera. These bonds were purchased with full confidence in the responsibility and honor of the government involved.

“The making of representations for the protection of American bondholders is not desirable until ordinary business negotiations and arrangements are nullified and made ineffectual by evident bad faith or obvious intent to disregard contractual obligations. Unfortunately at the present time such contractual relations have been widely disregarded or too easily subordinated to considerations of brief expedience to a degree which threatens one of the most important bases of human relations.

“It was never more important that debtor governments should now make every reasonable effort to meet their financial obligations and in doing so preserve their credit for the future and help to preserve the structure of international credit.”

The attitude thus expressed has been consistently demonstrated at opportune times by informal conversations with the President, the Minister of Foreign Affairs, Minister of Hacienda and other Government officials interested in the Loan negotiations.

Friendly interest in a successful outcome, and the beneficial effect upon Salvadoran credit of an equitable arrangement with the bondholders has been the general trend of such informal conversations. In this way, the moral influence of the Legation has been steadily exerted in favor of a settlement and as such has been a factor in finally reaching a conclusion which seems to be satisfactory to both the contracting parties. Franker and closer co-operation with the committee, the advisability of which was suggested in Legation’s despatch No. 366 of August 9, 1935, might possibly have brought about an earlier settlement and slightly better terms for the Bondholders.

The Bondholders representative, Mr. Douglas Bradford, has conducted his negotiations tactfully and well. He has expressed satisfaction with the Legation’s attitude and given his opinion that the present policy of the Department, friendly counsel and moral influence rather than official action as formerly, was in this particular case wise and prudent in the final analysis. The Government of El Salvador, through Minister Samayoa, has also expressed satisfaction with the results achieved.

Absence of this moral influence of the Legation would in my opinion have made the arrival at a settlement a matter of the very indefinite future. The contract being one in which the Department had an actual responsibility the Legation feels that a clear exposition of its position in this matter may serve to clarify and to some degree furnish background for orientation in like situations in the future. It is certainly [Page 582] true that a completely negative attitude on the part of the Legation would have been construed here as a positive disavowal and disapproval of the Bondholders representative and his attempts to reach a settlement.

Respectfully yours,

Frank P. Corrigan
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