821.51/2383: Telegram
The Secretary of State to the Under Secretary of State (Welles)
31. Your 16, September 26, 3 p.m. The Department has again discussed with the Treasury and Messrs. Jones and Pierson the broad problem of economic and financial cooperation with the other American republics, with special reference to your suggestion that you be authorized to extend invitations to the Governments of Colombia and Peru to send special representatives to Washington to discuss their situations with this Government. Our conversations indicate general agreement on a number of phases of the problem:
1. That it will be possible to proceed with Export-Import Bank and Stabilization Fund operations within the limitations discussed by you with the Treasury and Mr. Jones. Prior to your departure Mr. Jones indicated that additional Export-Import Bank operations might be undertaken to the extent of 15 to 20 or even possibly 30 million dollars, while the Secretary of the Treasury indicated that he was prepared to use the Stabilization Fund in operations secured by gold deposited [Page 509] in this country. Since that time the Export-Import Bank has agreed to commitments with Brazil, Chile, and Panama amounting to 11 million dollars. Within these limitations, however, it will be possible to go ahead with certain of the most urgent requests for assistance.
With specific regard to Colombia, it is the Department’s impression that the amounts of assistance in the form of a line of credit for the Banco de la Republica would probably be considerably greater than present availabilities would make possible. The Treasury has already indicated to the Colombian Government that it is prepared to make available dollars against gold collateral (Colombia has $20,000,000 of gold). Beyond this it might be possible to consider favorably modest Export-Import Bank transactions. It is not immediately obvious how much the assistance requested by Peru might involve, but it would seem possible that assistance to tide over the emergency might be effected within the limits of Export-Import Bank powers mentioned above.
2. That as soon as you return it will be essential and desirable for this Department, the Treasury and the Federal Loan Agency to collaborate in the preparation of a broad program for economic and financial cooperation with the other American republics to be presented to the Congress for its approval. Such a program would probably involve increased lending powers for the Export-Import Bank, specific congressional authorization for the type of Stabilization Fund Transactions, other than against gold which we have discussed, and possibly authorization to make long term loans of gold in connection with reorganizations of their monetary systems. It is generally hoped and believed that with the full presentation of all aspects of the situation widespread approval of such a program would be forthcoming.
The Treasury also suggests that the Under Secretary of the Treasury should fully discuss the situation and such a program with you as well as other officials of the three agencies prior to his going to the Guatemalan conference in November.
3. That it would be unwise from the immediate internal political point of view, as well as in relation to the broad program mentioned in (2) above, to have during the near future visits here of special representatives with inevitable attendant publicity. For this reason it is not believed desirable at the present time to invite the Governments of Colombia and Peru to send special representatives or missions to Washington to carry on economic discussions with us.
4. That due consideration be given to debt default situations and other problems outstanding between this country and individual other American republics. The emergency situation arising out of the war [Page 510] naturally calls for reexamination of the previous attitude assumed by this Department and other Government agencies. The Department believes that where a country is in a position to conclude a reasonable and equitable debt settlement, or at least to enter into a reasonable transitional arrangement, this Government would not be justified in extending credits unless this operation was preceded by or accompanied by a satisfactory debt arrangement. (The Treasury feels strongly that the negotiations for such an arrangement should not be linked closely to the credit discussions, nor the credits possibly considered as an inducement for the debt arrangement.) In those cases where a country is utterly unable to make any payment that would be considered by the bondholders as reasonable even transitionally, the Department would be prepared to recommend to other agencies the extension of credit facilities to tide over the emergency and possibly pave the way for a future settlement of the debt situation.
It is noted that the Colombian Delegation has indicated that the Colombian Government would be prepared to make some sort of service of the existing debt. For your information the Colombian Ambassador on September 26 inquired under instructions whether it was correct that the Export-Import Bank had opened a credit of five million dollars to Chile and had participated in the financing of the sale of ships to Brazil. The Colombian Government desired to know whether it was still on the “blacklist” because of inability to come to an agreement with the Council. The correctness of his Government’s information with regard to the Chilean and Brazilian transactions was confirmed. The Ambassador then asked whether this Government would be prepared to receive proposals regarding Export-Import Bank assistance. The Ambassador was informed that the Department was now in the process of reexamining its policy, and that while no definite statements could be made the possibility of Export-Import Bank credits for Colombia was no longer out of the question.
With regard to Peru, you will recall that last June the Peruvian Government was informed that this Government would be happy to welcome a mission to discuss further economic cooperation between the two countries.50 At the time it was suggested that full preliminary exploration of the possibilities for cooperation be carried out and that Peru submit as soon as possible the projects which it believed desirable and feasible. Since that time the Peruvian Government has given no evidence of any desire to go forward with this matter.
Among the matters taken up at that time with the Peruvian Government was the debt situation, and the Embassy repeated the statement made by the Under Secretary to the Peruvian Ambassador that “in view of our knowledge of the very favorable economic and financial [Page 511] situation of the Peruvian Government, in which we all rejoice, it was very difficult to understand why no real effort had been made by the Government to reach an agreement for the adjustment of the legitimate obligations to the bondholders”.
It is suggested that you discuss the situation quite frankly with the Colombian and Peruvian Delegations, pointing out why it would be undesirable at this time to arouse any widespread publicity such as would follow upon an invitation for special representatives to come to Washington. You may indicate that within the limitations of present powers, this Government would be pleased to consider immediate assistance to tide over emergency situations, and that such assistance might be followed by broader cooperative arrangements early next year if wider powers are authorized by the Congress. It is suggested that you indicate that this Government will be pleased to take up the immediate matters with regular diplomatic representatives in Washington, and that we should welcome all possible information regarding the existing situation in each country and plans for requests for the future. Mr. Jones has indicated that if it will assist you in your discussions at Panama, he is prepared to send representatives of this Government to Colombia and to Peru, and you are authorized to state that this Government will do so if you feel that such a course is desirable. Although it is not felt that such visits by American representatives are really necessary, and there is some danger that such visits might lead to expectations which might later not be realizable, such a course might enable this Government to postpone final decisions until broader powers to act in the situation have been obtained.