Foreign Relations of the United States Diplomatic Papers, 1938, The British Commonwealth, Europe, Near East, and Africa, Volume II

800.51W89 Hungary/176

The Hungarian Legation to the Department of State¹

Aide-Mémoire on Hungary’s Relief Debt to the United States

1. Hungary, normally a wheat and flour exporting country, was faced in 1920 with a threatening famine. It became necessary therefore to purchase on credit from the United States Grain Corporation 13,890 tons of flour at a price of $121.37 per ton and the Hungarian Government became indebted to the American Government for the cost of this purchase in the amount of $1,685,835.

This debt was funded into interest-bearing bonds in 1924. The funded principal amount of these bonds was $1,939,000 since there was included in the total an amount of $253,000 which had accrued as interest between 1920 and 1924.

The Hungarian-American debt settlement² was worked out on the same basis as the British-American debt funding settlement,³ containing none of the concessions which were later granted from those terms to other countries. The total principal to be repaid included, as has already been remarked, a large element of accrued interest. Furthermore the annual payments becoming due on the new principal from the very beginning of the agreement contained a large element of interest payment.

This is in contrast to the settlements reached with other Danubian countries which had likewise incurred relief debts to the American Government at about the same time and for similar purposes. In these other funding arrangements the annuities provided for the years between 1924 and 1931 were all on account of the principal amount of indebtedness.

On the other hand, as a result of this difference in terms, of the $468,466.32 which the Hungarian Government paid during these years, only $73,995.50 was applied to reduction of principal, the other $393,717.78 being charged as interest. Thus the nominal unpaid principal of the Hungarian debt now stands at a substantially higher total than it would, had Hungary enjoyed the terms later granted to other Danubian countries.

The failure of Hungary to effect payments to the United States under the terms of its debt contract had no relation whatsoever with the defaults of other debtors of the United States. In December, 1931, six months before the Hoover Moratorium expired, the sudden withdrawal of foreign short-term credits completely exhausted the gold and foreign exchange reserve of the National Bank of Hungary and forced the Government, in order to safeguard the financial stability of the country, to decree a transfer moratorium on all foreign debts.

The annuities due under the funding agreement of 1924 were included, however, by the Hungarian Government in every budget passed by Parliament from 1932 to 1937, and on each payment date the United States Government was informed that in lieu of transfer, Treasury bills in the national currency were deposited in its favor.

Since the summer of 1937 the Hungarian Government has been emerging from the moratorium which for several years has interrupted payments on all kinds of Hungarian foreign debts to all classes of creditors in all parts of the world. Arrangements on a provisional and temporary basis have been worked out with various groups of creditors. Concurrently a payment of $9,828.16 was made to the American Government on December 15, 1937.⁴

2. Responsive to the repeated indications given by the American Government to the effect “that this Government is fully disposed to discuss, through diplomatic channels, any proposals which your Government may desire to put forward in regard to the payment of this indebtedness, and to assure you that such proposals would receive careful consideration with a view to eventual submission to the American Congress”, the Hungarian Government is now prepared to offer to the United States Government to pay in full the total original amount borrowed.

It therefore tentatively formulates for the consideration of the American Government a possible basis of a new debt arrangement between the two countries to replace completely the debt agreement of 1924 and accruals thereunder.

The forms and terms for effecting this new settlement which are under consideration as the basis of a possible offer to the American Government are as follows:

(a) That all payments hitherto made by the Hungarian Government under the debt settlement of 1924 to the United States (approximate amount $478,000) should be recalculated as credited against original principal ($1,685,000).

(b) That the original principal ($1,685,000) of the amount borrowed less the preceding amount paid ($478,000) or $1,207,000 be paid in full in a series of annuities.

(c) The sum total of these annuities shall be equal to this reduced principal and shall be in the form of dated non-interest-bearing notes falling due at specified dates. These annuities shall run for a period of approximately thirty years (and hence each would be approximately in the amount of $39,000).

3. The Hungarian Government wishes to point out that the sum total of these annuities, taken together with amounts previously paid by the Hungarian Government under the debt agreement of 1924, would be identical with the whole original amount borrowed, and thus represent an exact and full discharge of the debt.

The Hungarian Government hopes all the more that this offer will prove acceptable to the American Government as it very closely approximates the basis for payment annuities already accepted in the Austrian settlement of May 8th, 1930⁵ for the discharge of a relief indebtedness of the same character and referring to a country whose capacity to pay can hardly be considered inferior to that of Hungary.

In announcing the signature of said agreement with Austria, the Treasury Department stated that “The settlement compares favorably with the settlements made by the United States with the Governments of Greece, Italy and Yugoslavia”.

The Hungarian offer would be even more favorable to the United States Government as in contrast to the terms of the Austrian settlement the Hungarian Government offers complete repayment of its relief obligation within the present generation.

Washington , February 7, 1938.

[The President in his message to Congress on March 28, 1938, declared:⁶

“I believe the proposals of the Hungarian Government should receive the most careful consideration of the Congress. They represent a noteworthy wish and effort of the Hungarian Government to meet its obligations to this Government.”

In telegram No, 35, January 12, 1940, 5 p.m., to the Ambassador in France, it is stated: “Congressional leaders have always been indisposed to find time for consideration of the Hungarian debt proposal even by Ways and Means Committee, which has initial jurisdiction.” (800.51W85 Hungary/210)]

1. Handed to the Secretary of State by the Hungarian Minister, February 8, 1938.
2. For correspondence, see Foreign Relations, 1924, vol. ii, pp. 325 ff.; for complete text of agreement, see Combined Annual Reports of the World War Foreign Debt Commission 1922–26, p. 132.
3. For text of agreement dated June 18, 1923, see ibid., p. 106.
4. Similar semiannual payments were made up to December 15, 1941.
5. For text of agreement, see Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1930 (Washington, Government Printing Office, 1931), pp. 316–322.
6. Congressional Record, vol. 83, pt. 4, p. 4182.