821.51/2579
Memorandum by the Acting Chief of the Division of the American Republics (Bonsal) to the Under Secretary of State (Welles)
Mr. Welles: I had a lengthy telephone conversation last night with Mr. Francis White. I read Mr. White the attached draft of a letter22 which the Colombian Ambassador is willing to send to the Department. I regret that Mr. White’s attitude remains completely [Page 718] unsympathetic to the settlement. His point of view may be summarized as follows:
- (1)
- He insists that the Department promise to support the Council in obtaining an interest rate of at least 3½ per cent; he referred to a letter dated May 3, 1940 from Mr. Duggan to this effect.
- (2)
- Mr. White believes that the present permanent settlement should carry with it a provision to the effect that, in the event of a default, the holders of the bonds would be entitled to the rights provided in the original contracts (this was discussed with Mr. Laylin prior to my conversation with Mr. White. Mr. Laylin did not feel that any favorable action could be obtained at this time from the Colombian Government).
- (3)
- Mr. White feels strongly that the bonds under the permanent settlement should bear a statement to the effect that in the event that other creditors of the Colombian Government receive better treatment that the American holders should then be given the same treatment. He referred particularly to the British bondholders (as far as I am concerned this is a new complication; I will discuss it with Mr. Laylin).
- (4)
- Mr. White insists that the new bond contract should specify, as did the original contract, that bonds purchased for cancellation under the plan should be purchased exclusively through the Fiscal Agent. (I understand that the Colombian Government desires to handle some of these purchases through other agencies than the Fiscal Agent in the interest of saving fees; this can be discussed further with Mr. Laylin).
- (5)
- Mr. White remains highly dubious about what he calls the “escape clause” in the decree of last July. He did not think that the statement in the draft letter referred to above was “adequate”. In my opinion, his attitude on this point is stubbornly unrealistic.
- (6)
- Finally, Mr. White states that the Council has before it no detailed offer on which it could base a statement. He says that when such an offer is received, it will be passed on to the bondholders, together with any comment which the Department makes, and with the Council’s own views. He would like a copy of the draft letter which Ambassador Turbay is willing to send the Department; I perceive no objection.
Recommendation
In view of the fact that some announcement should be made prior to January 1 and of the further fact that Mr. White has brought up a number of points with regard to which we may wish to have further discussions with Mr. Laylin or with the Colombian Ambassador, my recommendation as to procedure is as follows:
- (a)
- The Colombian Embassy should issue a brief statement to the effect that the Colombian Government is about to make a permanent offer of settlement to the bondholders along the general lines prescribed in the second paragraph of the attached draft letter. The statement would say that the detailed offer will be made known just as soon as the final details regarding certain technical points are cleared up. This will serve to assure the bondholders that they will continue [Page 719] to receive the same treatment as under the temporary settlement, plus the 3 per cent interest on 50 per cent of the bank coupons.
- (b)
- The Department will at the same time issue a statement to the effect that it has been gratified to learn of the intention of the Colombian [Government] to make a permanent settlement and that, under all the prevailing economic and other conditions, the Department believes that the offer represents a reasonable settlement in the light of all the circumstances and should receive most careful consideration from the bondholders and from organizations purporting to represent them.
In this way, I think that we can get the settlement off to a favorable start, avoid at this time any public discussion of the more or less technical detailed points raised by Mr. White, as well as provide time for further discussion with the Colombians of some of the points and possibly favorable action on their part in regard to them.
- Not found in Department files.↩