819.51/953: Telegram
The Secretary of State to the Chargé in Panama (Flexer)
59. Your 109, October 22, 3 p.m. Please leave an aide-mémoire in the following sense with the Minister for Foreign Affairs with reference to the pending legislation authorizing the issue of 6,000,000 balboas of Guarantee Bonds and establishing measures respecting to banking institutions and public utility enterprises. The contemplated legislation has moved so rapidly that the American interests concerned have not had full opportunity to consider its bearing on [Page 815] their respective enterprises. Already, however, the American banks whose branches would be required to invest 20 percent of their deposits from residents of Panama in Guarantee Bonds bearing 3 percent interest secured by payment of the same rate of interest by the Bornco Nacional on the deposited proceeds of the bonds or to exchange the Guarantee Bonds par for par for repatriated bonds of Panama issues of 1923 and 1928 paying a reduced rate of only 3 percent interest and therefore probably not marketable at par, question whether in view of the banking laws of the United States they would not have to withdraw from operation in the Republic of Panama. This would be a practical situation the direct effects of which the Government of Panama would of course be in a position to appraise. Other features of the law may involve difficult and disturbing problems to other American enterprises in Panama.
These effects and the further apparent possibility that the proceeds of the Guarantee Bonds may be used to buy in bonds of the two outstanding dollar bond issues of the Republic of Panama at depreciated prices are of concern to the United States Government. In particular the practice of redemption of bonds at a discount caused by the failure of the debtor to pay contractual interest has been very severely attacked by the Securities and Exchange Commission in a report to the Congress14 and a development of the kind in connection with the bonds of the Republic of Panama would no doubt attract grave criticism.
In view of all the circumstances, the Government of the United States hopes that legislation of the type now pending will not be hastily adopted and that time may be afforded for full consideration of its implications.
- Securities and Exchange Commission, Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective and Reorganization Committees, Part V, Protective Committees and Agencies for Holders of Defaulted Foreign Governmental Bonds (Washington, Government Printing Office, 1937), pp. 494 ff.↩