823.51/1505: Airgram

The Chargé in Peru ( Patterson ) to the Secretary of State

A–1537. Department’s telegram 1188, October 26, 9 p.m.81 In the interval pending Mr. Robert E. McCormick’s82 arrival in Lima, the exact date of which has not been disclosed to the Embassy, his prospective visit has been informally indicated to the Peruvian agencies including Senator Dasso,83 Finance Minister East, former Finance Minister David Dasso, and a Foreign Office official.

The reaction of the personalities hitherto approached is not conducive to a belief that in the absence of something more forceful than oral persuasion, the Peruvian Government is likely to propose, or to assent to a proposition conducive to, settlement of bonded indebtedness [Page 754] in a sense acceptable to the Foreign Bondholders Protective Council.

For instance, Minister East … observed that at the time of Mr. McCormick’s expected visit he would probably be extremely busy preparing his Ministry’s budget for presentation to the Peruvian Congress, the ordinary session of which terminates on November 27. Upon my remarking that this very time seemed opportune for a visit of a representative of the Bondholders Council and that Minister East would be in a position to add to his budget a subdivision for settlement of the outstanding dollar bonds, Minister East smiled and made no further observation.

Again, I had a talk at some length with Mr. David Dasso at a social reunion, at which time I mentioned his visit to the United States in the spring of 1942, and the confidence apparently placed at Washington in assurances given by him at that time on matters of interest to the Peruvian and United States Governments including outstanding bonds of United States citizens. To this Mr. Dasso replied that he regretted that a beginning had not been made toward settlement of this bonded indebtedness but at the same time remarked that he considered the bondholders, then represented by Mr. White,84 ill-advised in having summarily turned down a proposal made by Mr. Dasso to begin interest payments at the rate of 1% per annum. On my remarking that this seemed a very small beginning and inquiring if he had proposed anything for amortization of the principal, Mr. Dasso replied negatively, stating that while his suggestion was indeed modest it recorded a willingness of the Peruvian Government to recognize the existence of the outstanding dollar debt. Continuing, Mr. Dasso stated that the Peruvian sense of obligation toward the debt had been somewhat impaired by a variety of facts or alleged facts including rumors of illicit bonuses paid by the representatives of the banks negotiating the loans in Peru …; the receipt by Peru of a figure well under the original market price of the bonds; the transfer of bonds into other than the hands of the original holders including bank interests in New York which had bought them up cheaply.

From observations such as those outlined above it seems apparent that influential Peruvians who probably are in a position to interpret the attitude of the Peruvian Government do not believe in the existence of a strong sense of responsibility on the part of the authorities in this country to effect a serious approach to the debt problem at the present time. However, it is admitted that Peruvian finances are now in an excellent state. Despite this fact there is evidently little interest in liquidating, or even beginning to settle, an indebtedness which was contracted under a régime now defunct and discredited.

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It has moreover been remarked that should approach toward settlement of the problem be made, it is hardly conceivable that the Peruvians would consent to more favorable terms than those under which Mexican indebtedness to United States interests is understood to have been assumed by a syndicate of American bankers85 at figures whereby the outstanding principal debt is stated to have been scaled down by of 5/6 its original total. At the same time, it is admitted that too advantageous a settlement from the Peruvian standpoint may well impair this country’s future credit.

Patterson
  1. Not printed.
  2. Representative of the Foreign Bondholders Protective Council.
  3. Andres Dasso, brother of the former Finance Minister.
  4. Francis White.
  5. See the New York Times, December 18, 1942, p. 48, and December 19, 1942, p. 29.