816.51/1180

Memorandum by the Assistant Chief of the Division of the American Republics (Cabot)67

Dr. Bustamante of El Salvador has arrived to negotiate a debt settlement with Professor Dana Munro. He called on me this morning and we held a meeting with Mr. Livesey and Mr. Collado.

Mr. Livesey arranged an appointment for Dr. Bustamante with Professor Munro for 11 a.m., December 1 in New York. It was not possible to start negotiations earlier because Dr. Valdés,68 who is accompanying Dr. Bustamante on his mission and who has the required statistical information, has hurt his foot in New Orleans and will not be on hand before that date.

Dr. Bustamante said that he was empowered to offer a settlement along the lines discussed last summer, except that the provision regarding interest would be modified to offer half of the original contractual [Page 340] rates on the three series of bonds. I certainly trust that Professor Munro will accept these terms, but I fear that we may have some difficulty with the British in view of the fact that the Salvadoran proposal would reverse the relative treatment of the “B” and “C” series bonds by comparison with the 1936 settlement. Dr. Bustamante appeared fully determined to effect a settlement. He mentioned the fact that special taxes were being imposed to provide for the debt service and that the major item, an increased coffee tax which should yield about $1,500,000 per annum at present prices, had already been enacted. Even making full provision for the proposed interest, and even allowing for a substantial rise in the price of the bonds (now about 40 according to Dr. Bustamante) upon the consummation of the settlement, this should mean a very substantial debt retirement every year so long as the present coffee situation prevails. It should also have the happy effect of retarding inflationary trends in El Salvador.

  1. Addressed to the Chief of the Division of the American Republics (Bonsal), and to Mr. James Wright, of that Division. Mr. Wright made the following comment in the margin: “We should nail this down.”
  2. V. Manuel Valdés, Central Reserve Bank employee.