821.51/2338: Telegram

The Secretary of State to the Ambassador in Colombia (Braden)

56. Your 42, June 29, 1 p.m. The Colombian Ambassador presented a comprehensive memorandum15 to the Foreign Bondholders Protective Council incorporating the so-called López offer and Mr. White in a conversation with the Ambassador on June 1616 indicated that the offer was very low in view of Colombia’s financial position and the higher service on internal issues. The Ambassador said he would refer Mr. White’s views to his Government, and the Council is apparently awaiting a reply which it hopes will contain a better offer. A copy of the Colombian memorandum and of a memorandum of Mr. White’s conversation were sent to you in the air mail pouch which should have reached you yesterday.

Although the Department has not made a careful analysis of Colombian finances, it recognizes the weight of some of the considerations [Page 482] raised by the Council and therefore very earnestly hopes that the Colombian Government will give them a most thorough consideration. If suitable occasion arises at your dinner on July 8, you may, in your discretion, express to the Minister your hope that in view of his detailed knowledge of the whole situation he will be able to find opportunity personally to study the Council’s observations in order that he may arrive at his own conclusions uninfluenced by the opinions of others who do not recognize as he does the desirability of settling the debt default as soon as possible.

The Department has no indication of what interest rate the Council might be willing to accept, and believes that it would be preferable at this stage for no suggestion to be made by you even on your own responsibility as to what would be reasonable and fair.

For your information the Department has been informed that in order to overcome one of the Council’s objections the Colombian Ambassador has advised his Government to consider the possibility of a reduction in the rate of interest on internal bonds proportionate to that proposed on the external bonds.

With regard to the Minister’s reference to the Chilean debt settlement, as set forth in your despatch no. 117, you may find it desirable to emphasize that as a result of subsequent negotiations of the Chilean Government with the Council and the formal assurances given the latter as to the scope of the law, and in recognition of the appreciable payments being made by Chile under difficult economic conditions, the Council withdrew its recommendation against acceptance of the Chilean proposal. The amount paid by Chile for service on its foreign debt alone in 1938 was 22 percent of the national budget, half of which was allocated for interest payments.

With further reference to your despatch no. 117, there has recently been under reconsideration the policy which the Export-Import Bank should pursue in relation to the extension of credit to governments in default on their external indebtedness. You will be informed as soon as decision has been reached.

In the meantime, if you feel you must make reply to the questions posed by the Minister of Finance as conveyed to the Department in despatch no. 117, you may say that a gold bullion loan would require specific congressional authorization as indicated in the Brazilian arrangements. There has been no occasion as yet to submit that question to Congress for action since as yet no request has been received from Brazil. Since the Colombian Minister of Finance indicates that he regards the proposal made to Brazil as not particularly applicable to Colombia, this Government might be prepared to consider any counter suggestion from him as to exchange facilities such as advancing dollars against gold collateral.

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The credits granted by the Export-Import Bank must be for the purposes of facilitating United States export or import trade, and it would appear difficult to justify an extension of credit by the Bank to the Agricultural Credit Bank of Colombia which would be regarded as a capital increase (the Bank is specifically forbidden to purchase stock).

The Department will instruct you further with respect to the remarks of President Santos and the Minister of Finance regarding cotton goods in connection with the trade agreement.

  1. Not printed.
  2. Memorandum of conversation not printed.