823.51/1477

The Ambassador in Peru (Norweb) to the Under Secretary of State (Welles)

Dear Sumner: All of us who have been working on the major problems of Peruvian-American relations are in complete accord with the views set forth in your letter of April first regarding the continued Peruvian default on the service of its dollar debt. I will take an early opportunity to discuss the question again with President Prado, but I would like to have your comment upon subsequent paragraphs of this letter. It would be especially helpful if your reply could reach me during the time that Mr. Wallace and Larry Duggan will be in Lima—from April eleventh to fourteenth.67

There are, I believe, three contributing factors of importance which affect this debt settlement. Peru has a notoriously bad reputation for meeting its financial obligations. The dollar loans still are associated with the Leguía68 régime and, although the feeling against that régime no longer is acute, a resumption of service on the bonds will be unpopular from the point of view of internal politics. Finally, we ourselves have failed to definitely tie up our substantial financial and economic aid to Peru with a specific commitment concerning service on the dollar bonds.

Cooperation in our economic warfare program and in continental defense have been my two major preoccupations in Peru. Next in importance has come the settlement of various debts and claims. I have discussed the dollar bonds, the postal debt, and various private claims repeatedly with the President and with Cabinet Ministers. Julian Greenup69 says that conversations by Ambassadors and other officers of the Embassy with Peruvian officials have been going on for seven years to his knowledge, without obtaining any solution.… We must convince them that we mean business.

The record will show that when David Dasso visited Washington a year ago the Embassy strongly recommended that the extension of financial and economic aid on our part be made contingent upon action by Peru to meet its obligations. It was pointed out that Dasso, as a practical business man, would expect and agree to such dealing. There are many other Peruvian business men who admit that Peru should be forced to make an arrangement, that Peruvians will not like paying but that they will do so and will respect us for insisting [Page 747]upon payment. The commitment made by Dasso in Washington with respect to the debt was a very tenuous one. Something might have come of it, even so, had he been able to continue in office as Minister of Finance.

When I was in Washington last November, I discussed the dollar debt question in the Department, suggesting that a representative of the Foreign Bondholders Protective Council be sent to Lima to follow up the Dasso commitment. My impression was that the Department still did not wish to consider the question as one between the two Governments. I am convinced that our Government is going to have to enter the picture in some way if we are to obtain payment from Peru.

You may wish to read my despatch no. 6471, dated April 1, 1943,70 regarding Warren Pierson’s71 recent conversations in Lima about the dollar bonds. Warren told David Dasso and Julio East72 that some definite action on the dollar debt probably would have to be taken before the Export-Import Bank could do any extensive financing of projects in Peru. These projects are of special interest to President Prado. Dasso and East immediately agreed, stated that action should have been taken long ago, and East promised prompt attention to the matter.

The way has been paved for another approach to President Prado. My idea is to review the entire situation with Larry Duggan when he reaches Lima. I then will talk with the President. I can refer to Pierson’s conversations with Dasso and East and to the definite promises made by the two latter. Then, I believe, I should suggest that President Prado have an official request made for a representative of the Foreign Bondholders Protective Council to come to Lima for the purpose of reaching an immediate agreement for the resumption of service on the dollar debt. Perhaps the visit of the Council’s representative could be postponed for a short time provided the Peruvian Government immediately will make a reasonable offer to the bondholders. All of this presupposes that the Department is going to participate in the negotiations at least to the extent of directly arranging for the officials of the Peruvian Government and of the Council to get together and to keep at it until a settlement has been reached.

With cordial personal regards,

Sincerely yours,

Harry Norweb
  1. For correspondence on the trip of Vice President Henry A. Wallace and Laurence Duggan, Adviser on Political Relations, to certain of the American Republics, see vol. v, pp. 55 ff.
  2. Agusto Leguía y Salcedo, President of Peru from 1919 to 1930.
  3. Counselor for Economic Affairs at the Embassy in Peru.
  4. Not printed.
  5. President of the Export-Import Bank.
  6. Peruvian Minister of Finance.