Foreign Relations of the United States: Diplomatic Papers, 1943, The American Republics, Volume VI

816.51/1118

The Bondholders Protective Committee for the Republic of El Salvador⁴⁸ to the Secretary of State

New York, December 23, 1942.
[Received December 26.]

Sir: The Committee desires to call your attention to the fact that the Republic of El Salvador has published, in the Diario Oficial of November 30th last, a Decree providing for the repatriation of approximately $1,523,000 principal amount of various issues of its foreign bonds at a price of approximately 20% of par value. The Committee has reason to believe that the parties who sold these bonds to the Government acquired them at an average price of not much over 10%.

In view of the fact that the Republic has failed to provide funds to meet the service on its foreign debt since January 1st, 1938, on the grounds that the general economic situation of the country has prevented the Government from complying with these obligations, the Committee is seriously concerned at the implications of this proposal.

It is the opinion of this Committee that any funds the Republic may have available for debt payments should be first applied to the liquidation of the interest due, and that the diversion of funds for extinguishing obligations of this character when they have been in default for many years, and as a consequence selling at very low levels, constitutes a reprehensible practice and evidences a lack of good faith on the part of the Republic towards its creditors.

Some 3000 bondholders represented by this Committee have shown considerable patience over a 4–year period in the belief that the Salvador Government would eventually carry out the repeated assurances it has given them to the effect that service on the foreign debt would be resumed the moment its financial situation permitted the Government to do so. From the facts presented herein it would appear that the confidence of the bondholders in the assurances of the Salvador Government has not been warranted.

The Committee considers the facts presented herein constitute a violation of the Loan Agreement of 1922,⁴⁹ with respect to which the Department of State undertook certain responsibilities, and of the Readjustment Agreement of 1936.⁵⁰

It, therefore, is submitted that said facts fully warrant representations on your part to the Government of El Salvador as constituting a breach of faith to the citizens of the United States and to the British holders of these bonds.

Respectfully submitted:

Joseph Carter

Secretary

48. With headquarters at 30 Broad Street, New York, N.Y.
49. For correspondence concerning the loan contract entered into by the Government of El Salvador and Mr. Minor C. Keith on June 24, 1922, see Foreign Relations, 1922, vol. ii, pp. 885 ff. For details concerning plans for proposed Departmental cooperation with bankers in the undertaking of foreign loans, see ibid., vol. i, pp. 556–558.
50. For text, see El Salvador, Readjustment Agreement between the Republic of El Salvador and Bondholders’ Protective Committee for the Bonds of the Republic of El Salvador and Council of Foreign Bondholders of London, Regarding the Loan Contract of 1922 as amended by Agreements dated January 5 and September 28, 1923, April 27, 1936, (n.p., n.d.); or Foreign Bondholders Protective Council, Inc., Annual Report, 1936 (New York, 1937), p. 373. For correspondence on this subject, see Foreign Relations, 1936, vol. v, pp. 572 ff.