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

I informed the Ambassador39 that Mr. Welles had requested me to take up a matter with him which Mr. Welles had intended doing himself, but his departure for the Panama conference40 made it impossible for him to do so, since the matter was one which could not be discussed hurriedly.

I then told the Ambassador of the very great importance attached by this Government to a settlement of the debt default with Colombia. The long delay in arriving at a settlement was retarding closer relationships, both governmental and private. In view of the very cordial relationships that existed between the two Governments, it seemed a pity that any obstacle to the fullest possible cooperation should be permitted to continue. For this reason the Department had high hopes that the discussions between the Ambassador and the Foreign Bondholders Protective Council would result in a settlement. The impasse which apparently had been reached in the negotiations was most disheartening, particularly because at the present juncture of world affairs cooperation between Colombia and the United States seemed all the more important.

I informed the Ambassador that the Department in its desire to be helpful was prepared to play a more active role than usual in negotiations between foreign governments and American bondholders. I then recalled that several weeks ago Mr. Laylin had come in for an informal conversation in which he had intimated that if it were possible to ascertain in advance the Council’s favorable view towards a settlement with a 3% starting interest rate and a final rate of 4%, the Ambassador would probably be prepared to submit it to his Government with a strong recommendation that it be accepted. At the time [Page 503] that Mr. Laylin had made this approach, the Department had hoped that through discussion the two parties would themselves find a common meeting ground. In view of the unlikelihood of this now occurring, the Department had given renewed thought to the situation and now wished to lay the following suggestion before the Ambassador for his consideration.

In order to conciliate the two points of view a solution might be arrived at on the terms of a starting interest rate of 3% and a final rate of 4¼%. In addition, there would be certain amounts for disposing of the arrears and for amortization. A settlement on this basis seemed fair and equitable to both parties. In order to secure its acceptance the Department was prepared to support it before the Council with all the influence at its command upon the knowledge that it was accepted by the Colombian Government. I said that the Department naturally could not give any assurances that the Council would accept the proposal, but that I could say that the United States Government would lose no opportunity to persuade each and every member of the Executive Committee of the Council of its belief that the offer was fair and reasonable and equitable, all things considered. I added that if this suggested procedure met favorably with the Ambassador, I would be interested in having his ideas with regard to the best manner of submitting it to the Colombian Government for its consideration.

The Ambassador then made a rather lengthy statement covering the history of the negotiations. By implication he admitted that the offer made by the Colombian Government might have been more generous, but discoursed upon the political realities in Colombia. The Conservatives are against any settlement that would be considered equitable in this country and the Liberals in Congress are desirous of a settlement at as low rates as possible because of the bearing of the settlement of the default of the national debt upon future settlements of the departmental and municipal debts. He said that it was his firm belief that every year that went past without a settlement, made a settlement favorable to the bondholders just that much more difficult. For that reason a modest arrangement with a low interest rate in the early years was better than no arrangement.

With regard to the particular proposal advanced, he said that, while he was prepared to recommend strongly a 3–4% settlement several weeks ago, provided there were adequate indications that the offer would be acceptable to the Council, the outbreak of war introduced so many unpredictable factors that he was not at all sure that his Government would not consider such an offer today an “impertinence”. In any case, he stated emphatically that in his opinion 4% was as high as Colombia should go in view of present money rates, and that under [Page 504] no circumstances would he submit to his Government the proposal of an ultimate interest rate of 4¼%.

In the ensuing discussion the Ambassador said he thought that it should be made very clear that his Government to date had not budged one iota from its estimate as to the total amount of service on the external debt that Colombia should make available. Within the total amount, he knew that the Government was prepared to negotiate regarding distribution as to interest, amortization, and the arrears.

I told the Ambassador that it would be too bad to see the present opportunity for a settlement pass without further efforts to come to a solution. While the war might result in a falling off of Colombian exports for a few months, a protracted war might mean the opening up of markets to an even greater extent for other products. It was possible that Colombia might find difficulty in disposing of all of its coffee, but it might find new markets for its petroleum, the supply of which would be greatly augmented in the very near future when oil started flowing through the pipeline from the Barco concession to the coast. I inquired whether the Ambassador would have any objection to my drawing up possible schedules of debt payment, which we might then talk over. The Ambassador replied he would be glad to have me do so, provided that the final interest rate was 4%.

It was agreed that schedules should be drawn up and that another conversation would be held in the very near future.

As he left, the Ambassador suggested that it might be useful for Mr. Welles to have a full talk with Señor Jaramillo, a member of the Colombian Delegation to the Panama meeting, regarding Colombia’s economic and financial problems. He reminded me that Señor Jaramillo not only was a member of the Debt Commission, but was a person whose views on finance are very highly regarded by members of both political parties in Colombia. He thought that a general discussion inevitably would get around to the debt problem during which Mr. Welles could find an opportunity of emphasizing the importance to Colombia of an early settlement of the debt default.

  1. i. e., the Colombian Ambassador.
  2. See pp. 15 ff.