Memorandum of Conversation, by Mr. James H. Wright of the Division of the American Republics

Participants: Dr. Fernando Salazar, representative of the Agricultural Mortgage Bank of Colombia;
Mr. Livesey—FF;4
Mr. Walmsley5 and Mr. Wright—RA.

Dr. Salazar called at our request to receive a reply to his memorandum dated September 306 in which he had proposed possible bases for the settlement of the Government-guaranteed Agricultural Mortgage Bank bonds and the non-guaranteed dollar bonds of that institution.

Dr. Salazar was told that the Department, the Foreign Bondholders’ Protective Council, and the bondholders themselves were anxious for a settlement which would reinforce confidence in Colombia and its credit. The Department had studied his memorandum and had certain informal comments to make. The Department could not act as a negotiator but would be glad to cooperate with him with a view to arriving at some solution which might form the basis for a satisfactory offer by the Bank to the bondholders. One very important series of information which was missing and which we wish to obtain as soon as possible was the breakdown of the item given on Page 6 of his memorandum as “valores diversos” of 22,812,354.20 pesos. It is pointed out that included in this sum was an undetermined amount of various of the Bank’s outstanding bonds. Unless we all knew just what these bonds were and in what amounts, our discussions could not proceed along any accurate course. Dr. Salazar promised to obtain this information as soon as possible.

Dr. Salazar was told that, still speaking informally, it was considered highly doubtful that the bondholders could accept, or that this Department could give any approval to, a settlement less favorable than the 3 percent settlement made on the bonds of the Republic of Colombia. The Agricultural Mortgage Bank bonds had been guaranteed by the Republic of Colombia; the Bank was a semi-official organization and, even admitting that the Bank had lost much of its capital and other assets, the bondholders and the public in this country would look to the guarantor for service in the event that the principals, in this case the Bank, were unable to pay. It was pointed out that the Department had been glad to lend its good offices in the settlement of [Page 76] the bonds of the national Government and if it were then to acquiesce in a less favorable settlement for a Government-guaranteed issue, its position would be an untenable one in the face of questions from bondholders, the public, or political sources as to why the Department of State could on one day say 3 percent could be paid by Colombia, on the next day loan Colombia $10,000,000 through the Export-Import Bank, then subsequently loan Colombia another $12,000,000 from the Export-Import Bank, and on the heels of this say Colombia was only capable of paying 2½ percent. Dr. Salazar readily recognized this position but stated that there were considerations in Colombia which rendered it difficult to make a settlement more favorable than the 2½ percent one he had offered. He finally said that his instructions were clearly limited to a settlement on a 2½ percent basis with the back interest to be forgiven. On the non-guaranteed bonds he could offer only equal or rather similar treatment, in any case not less favorable treatment than that extended to Lazard Brothers on the Sterling issues.

Dr. Salazar was told that the only way the Department could come into this discussion was because of the Government guarantee. Had it been a private bond issue with private holders, we would never have entered the discussions. The bondholders and the public here took the position that the Bank being a semi-governmental organization and its bonds having been guaranteed by the Government should not be treated as a private organization and when the Bank could not pay, the Government should. Dr. Salazar said that he recognized the logic and legal aspects of this argument and would present it to his principals.

Dr. Salazar assured us that in no instance would the non-guaranteed bonds receive treatment less favorable than that accorded the Lazard settlement. As a matter of fact, there was a possibility that the treatment might be slightly more favorable since the Bank might wish to issue a larger percentage of American bonds in dollars and not in pesos, as was the case for the Sterling bonds, and reduce the rate of interest to 3 percent instead of 4 percent as was paid on the Sterling ones. Thus the non-guaranteed dollar bonds would continue in dollars at a lowered principal amount and at 3 percent interest instead of 4 percent, but since a larger amount of the bonds would be given in dollars than was given in pesos for the Sterling bonds, the net return to the American bondholders would be essentially the same with the added advantage in having their obligation in dollars instead of pesos.

We discussed with Dr. Salazar the possible advisability of the Bank’s lumping the non-guaranteed and the guaranteed bonds into a single refunding issue all bearing the same rate of interest. Since the Bank already contemplated refunding the non-guaranteed bonds in dollar bonds and not in peso ones, this would be simple. Each would carry the same rate of interest and consequently there was no reason [Page 77] why the guaranteed bonds could not be lumped dollar for dollar with the non-guaranteed bonds at a percentage to be agreed upon and have the combined new issue carry 3 percent. This could have the advantage to the bondholder of having only one bond quoted on the market and should facilitate trading. The advantage would result to the Bank of having only one issue which would be more easily controlled and which would be more readily marketable since there would be a single quotation for the bond instead of a high quotation for the principal issue and a low quotation for the subordinate issue.

Dr. Salazar said that he was anxious to leave for Colombia in February and he would take this matter up immediately with his principals and hoped to arrive at some settlement.

The meeting was throughout cordial and Dr. Salazar exhibited a most cooperative attitude although he made it unquestionably clear that his activities were distinctly limited by the instructions he had received.

  1. Foreign Funds and Financial Division. Mr. Frederick Livesey became Acting Chief of this Division October 8, 1941.
  2. Walter N. Walmsley, Jr.
  3. Not printed.