Memorandum by Mr. Emilio G. Collado, Special Assistant to the Under Secretary of State (Welles),95a to the Under Secretary of State

Mr. Welles: Mr. Lancaster96 has called me twice with respect to the latest developments in the attitude which the New York and Chicago banking group wishes to take with respect to extension of the Colombian banking debt matter. You will recall that last December the debt was extended for six months on the old terms, and that the Colombian Government has authority to enter into a definitive agreement provided the period of amortization is not less than ten years. It is obviously desirable to settle this matter prior to the expiration of the present extension about the first of June.

The debt amounts to about $15,000,000; interest has been paid at three percent. Ambassador Braden has been suggesting a fifteen year amortization period, while the Colombian Government has been talking in terms of eighteen years. The banking group had not wished to exceed twelve to twelve and one-half years.

Annual payments of amortization and interest over a fifteen year period would amount to $1, 199,000; over eighteen years to $1,040,000. Mr. Lancaster states that the United States banking group would be willing to accept annual payments on the basis of the fifteen year period—that is $1, 199,000 per year, the entire arrangement to mature [Page 211] in about twelve and one-half years leaving a final payment—known in banking circles as a balloon—of between $2,000,000 and $3,000,000. In order to insure flexibility the banking group would be prepared to accept $1,000,000 during the first years to be stepped up to something over $1,200,000 in the final years.

Mr. Lancaster asks that if this proposal commends itself to the Department you advise him on how to proceed. He would be very happy if you would discuss the matter with Ambassador Turbay.97

In my opinion the proposal made by Mr. Lancaster is not a bad one. Colombia has wished to pay only $1,000,000 a year, but I believe that Colombia is interested primarily in the present and not in the long run, and that it would agree to the banking terms. Undoubtedly when the end of the twelve and one-half year period approached, Colombia would then renegotiate with the bankers to extend the period for the final payments. I believe that it would not be inappropriate to indicate informally to the Ambassador the views of the banking group and suggest that he take them up with Bogotá. I do not believe that the Department of State should take a formal position in the matter, but it might informally facilitate discussions which will undoubtedly be somewhat protracted, and consequently should begin at once to meet the June 1st deadline.

Mr. Lancaster will telephone again on Monday98 or Tuesday.

E. G. Collado
  1. Mr. Collado was also Executive Secretary, Board of Economic Operations, Department of State.
  2. W. W. Lancaster, Counsel for National City Bank, New York City.
  3. In an appended note, dated March 2, to Mr. Collado, the Under Secretary stated: “I suggest that you speak entirely informally with the Colombian Ambassador yourself. You may say that you are doing so at my request.”
  4. March 2.