The Secretary of State to the Ambassador in Panama (Dawson)
178. Your 201, November 20,38 and previous. The Department views with increasing concern the prospect that the refunding plan,39 which the bankers concerned say would immediately be accepted by 70 percent of the bondholders if it could be announced that 66⅔ percent of the deposits would be sufficient to make the plan effective, may be entirely defeated and allowed to lapse because Panama will not permit the minimum of required deposits to be decreased from 80 percent to 66⅔ percent. This change has been considered by officials of the SEC39a and found to be immaterial; the Department understands that the Foreign Bondholders Protective Council has the same opinion. The Council has already recommended the plan as a whole to the acceptance of bondholders. The financial advisers under the plan must not act as underwriters and are estopped from normal activities in the way of publicity and active solicitation of deposits. In the circumstances and with the complication of the cutting off of owners in occupied territories in Europe, the plan appears to have received an unusually full degree of acceptance prior to effectiveness, taking into account the assurances the bankers have received from organized or known holders who are unwilling to tie their assets up indefinitely without assurance that the plan will become effective.
In view of the alternative of confusion and entangled and lengthy litigation which would undoubtedly follow the failure of the plan to become effective, it would be regrettable were the Panamanian authorities to let it fail because of any misconception of the situation. The Department fears that the conjuncture of circumstances may result in the loss of an opportunity definitely to settle the question of the publicly floated foreign debt of Panama on favorable terms and to the immediate benefit of Panama’s credit and public standing in this country.
As the situation now stands, the plan will expire December 24 unless by that time it can be declared effective through the deposit of 80 percent of the bonds. The fact that the Panamanian Government has now twice extended the term on the contract from its original expiration [Page 1097]date is gratifying but the Department feels that the attitude indicated thereby of continued desire to reach a settlement will be ineffective unless the Government can grant the reduction of required percentage to 66⅔ percent and meet the other conditions required or desirable in order to afford a real chance for the plan to be brought into operation on or before an early fixed date.
The Department regards it as a matter of real importance to Panama that the fullest consideration of this matter by the highest authorities in Panama be assured. You are therefore requested to discuss the matter again orally and informally with the President, setting forth the interest which the Department takes in the matter and its belief that it should now be brought to a favorable conclusion. The Department does not, of course, attempt to express any opinion as to all the technical points of cooperative action which the financial advisers may recommend or as to changes which the Government may wish to suggest in details of the plan. However, it does wish a clear and forceful presentation of its interest in seeing an early definitive solution of the debt problem such as success of the pending plan would afford. The Department knows of no alternative plan which would promise a solution more satisfactory to the Government or to the bondholders, and clearly perceives that failure of the plan after it has so far advanced would produce unfortunate results.
Señor Briceño,40 who is thought to have arrived at Panamá, recently informed the Department that he regarded the plan favorably and would inform his friend, the President, of his attitude.