Memorandum of Conversation, by the Chief of the Financial Division (Livesey)

Participants: Dr. Fernando Salazar, Representative of the Agricultural Mortgage Bank of Colombia;
Mr. Walmsley,
Mr. Wright,
Mr. Livesey

Dr. Salazar came down from New York to report developments since his visit of January 15, 1942. He said that immediately after that conversation he telegraphed a report to the Bank. He received a reply jointly signed by the Colombian Minister of Finance92 and the Bank. They stated that after very full consideration of the matter they found that it would not be possible to make a proposal which would provide any payment in respect of arrears of interest on the Bank’s bonds. They did, however, regard a settlement which would give the bondholders bonds of the National Government of Colombia as very favorable to the bondholders in giving them a readily marketable security bearing the name of the Government of Colombia and no longer tied to the vicissitudes of the fortunes of the Bank, which, Dr. Salazar observed, might possibly again run into serious difficulties at the end of the world war. Dr. Salazar explained that the instructions he had first received from Bogotá were to offer 70 per cent of the capital amount of the outstanding bonds in new bonds bearing 2½ per cent interest. However, the Colombian Ambassador93 and he had insisted that a proposal involving the reduction of capital should not be submitted to the Department of State. He was then authorized to offer par for par of 2½ per cent bonds. The present proposal was par for par of 3 per cent bonds and these bonds had [Page 208] the added advantage of being an issue established in the American market. Thus Colombia had yielded on three points. The Bank considered that its fiscal position was such as to preclude its yielding further and proposing payments in respect of arrears of interests. (All this related to the guaranteed bonds.)

Dr. Salazar said that his new instructions authorized him to submit these considerations to the Department of State and to say that if the Department indicated no adverse opinion and he so reported to Bogotá, he might be authorized to submit a formal proposal before he leaves for Bogotá on February 4.

In discussion, Mr. Walmsley asked whether Dr. Salazar had received any further information regarding the Bank’s holdings of its own bonds, regarding which inquiry had been made in an earlier interview with Dr. Salazar. Dr. Salazar said that although he had asked for it several times he had not received this information, but that he had been told that it could be furnished the Department if and when a formal proposal was made to the Department. In reply it was suggested that to carry out the new proposal would probably require the filing of a registration statement with SEC, submitting all material facts respecting the Bank’s position, the number of its own bonds in its possession, the estimated number owned by Americans, and all other pertinent data regarding the Bank’s position. (Possibly registration could be avoided if a bank would handle the exchange and charge only for the costs of handling the papers.) The Department has no way of knowing what showing would be made in the registration statement in response to the inquiries SEC would undoubtedly make on such points. It would be very difficult for the Department to take any favorable attitude toward an adjustment proposal in the absence of information such as SEC would require, which might have a very important bearing on the public reception given any proposal.

It was pointed out that a settlement already made on the Government’s own bonds would be self-explanatory, and would minimize adverse comment. Anything less than this would invite adverse comment and be difficult for the Department to defend.

Dr. Salazar said that he recognized this but that the Bank’s position was as he had stated. He referred to the fact that direct appropriation by the Government would be a matter requiring congressional action and would thus be dragged into public debate. As a practical matter, therefore, the settlement had to be within the Bank’s and executive branch’s power of accomplishment without recourse to congress.

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Dr. Salazar inquired about further procedure. Should further action await his return to Bogotá, where he proposes to continue his interest in the matter? There was discussion as to whether the Department might not telegraph Ambassador Braden a report of the status of the matter with a view to his discussing it on a personal basis with the Minister of Finance. Dr. Salazar said that he did not know whether the Minister would be prepared to appear in the matter in this form, although he is also a director of the Bank and is interested in the matter in that capacity. He suggested that the initiative as to any discussions with the Ambassador should be left to the Minister of Finance, and said that he would immediately cable the Minister. If he finds the Minister favorably disposed to such conversations he will advise the Department of State would [which?] could instruct the Ambassador in the matter.

  1. Carlos Lleras Restrepo.
  2. Gabriel Turbay.