Memorandum of Conversation, by the Chief of the Division of Latin American Affairs (Duggan)

Mr. Lavis called on Dr. Feis32 and me to leave with us the attached copy of the agreement signed between the Committee and the Republic of El Salvador on April 27, 1936.33 The agreement provides that it shall be submitted to the National Assembly, which Mr. Lavis said would be done immediately. Quick action by the Assembly is expected.

Mr. Lavis said he wanted to call attention to the following:

That as a result of the agreement, $850,000 plus $467,000 would be paid on July 1 next, representing payment on the last two coupons in default and deposits on account of amortization. Mr. Lavis stated that so far as he knew this was the first agreement negotiated that provided for the payment of back interest and amortization.
That the agreement provides in Section 9 (b) and (c) for an arrangement which will give the Salvadoran Government four months’ leeway past the due date in transferring colones deposited with the Central Reserve Bank to the paying agent. The agreement provides for a Commission of Review, composed of the President of the Central Reserve Bank and a person to be named by the Committee, whom Mr. Lavis said would be Renwick, which would investigate to determine whether or not it was impossible to transfer remittances to the paying agent. Mr. Lavis said that this provision had been inserted at the last moment as the Salvadoran Government threatened not to sign unless something along this line were agreed upon. In Mr. Lavis’ opinion, the provision is not a bad one. If the Republic is determined to default, it will default regardless of the terms of the agreement. On the other hand, if it actually desires to comply but can not secure the necessary foreign exchange, this arrangement will provide a period of grace.
That the new agreement provides in Section 9 for an annual payment of $850,000, certain fixed amounts to be paid monthly throughout the year. Fifty-five percent is paid during the first six months; forty-five percent during the last six months.
That the Committee is to remain in existence in a skeleton form. The present bonds on deposit are to be retained and new certificates of deposit issued.

Upon inquiry, Mr. Lavis stated emphatically that the rights of non-assenting bondholders under the 1922 contract were not affected by the new agreement.

I asked Mr. Lavis if he would be kind enough to send the Department additional texts of the agreement as signed, which he said he would do.

L[aurence] D[uggan]
  1. Herbert Feis, Economic Adviser of the Department of State.
  2. For text, see El Salvador, Readjustment Agreement between the Republic of El Salvador and Bondholders’ Protective Committee for the Bonds of the Republic of El Salvador and Council of Foreign Bondholders of London, Regarding the Loan Contract of 1922 as amended by Agreements dated January 5 and September 28, 1928, April 27, 1986, (n. p., n. d.); or Foreign Bondholders Protective Council Inc., Annual Report, 1936 (New York, 1937), p 373.