823.51/1505: Telegram

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

1335. The Department refers to its telegram 1188 of October 26, 9 p.m.,86 and to your airgram A–1537, November 12, concerning the defaulted Peruvian dollar-bonded indebtedness.

Mr. McCormick found it necessary to return urgently to the United States from Rio de Janeiro and it has been decided that in his stead Mr. Lee Orton, who was Mr. McCormick’s co-negotiator at Rio de Janeiro, will visit La Paz and Lima in connection with the dollar-bonded indebtedness of Bolivia and Peru. Mr. Orton is now in La Paz and is scheduled to arrive at Lima December 9. Tentatively he intends to leave Lima on December 15. If, however, the occasion seems propitious, he will either remain longer or he and/or Mr. McCormick will return.

The Department attaches first importance to the early adjustment of the Peruvian dollar-bonded indebtedness now long in default. So strongly does the Department feel on the subject that I today requested the Peruvian Ambassador87 to call on me in this connection. I handed him the following memorandum:

“Strong feeling exists in both governmental and private circles in the United States that service should be resumed promptly on the Peruvian dollar bond issues which have been in default, both as to principal and interest since 1931. On April 23, 1942, His Excellency Señor David Dasso, Minister of Finance and Commerce of Peru, while visiting the United States, stated:

‘The Peruvian Government wishes to inform Your Excellency’s Government that it has entered into discussions with the Foreign Bondholders Protective Council, Incorporated, looking toward the early resumption of payments on the [Page 756] Peruvian dollar debt. These discussions with regard to the scale and amount of payments will be continued after my return to Lima and subsequent announcement will be made by my Government.’

“Subsequent to Señor Dasso’s visit (now 19 months past) several conversations on this subject have been held by Ambassador Norweb and members of his staff with Peruvian officials in Lima and there has been correspondence on the subject between the Foreign Bondholders Protective Council, Incorporated, and the Peruvian Government. There is marked disappointment that no adjustment has resulted, particularly when bondholders had been encouraged that a settlement was impending and when it was public knowledge that the financial condition of Peru lent itself to a resumption of service.

“Certainly the financial situation of Peru has improved markedly (even in comparison with the situation at the time of Señor Dasso’s visit to the United States in April 1942). Bondholders in the United States are, of course, aware of this favorable fiscal position and of the foreign exchange reserves which have resulted from extensive purchases of strategic materials which have been and are now being made by the United States in Peru. It is felt that the time is propitious for an early settlement of these defaulted bond issues and such action by Peru would be considered as another forward step in the reciprocal cooperation which characterizes inter-American relations. Failure to resume active negotiations looking to the resumption of service on these dollar bonds would not be understood in the United States and it would react unfavorably not only in financial circles, but also among the large body of holders of these defaulted bonds who are scattered widely throughout the population of the United States.

“The Department has just been informed by the Foreign Bondholders Protective Council, Incorporated, that Mr. Lee Orton, Representative of the Council, who has just concluded in Brazil on behalf of the Council a successful negotiation for the settlement of the entire Brazilian dollar bond indebtedness,88 is planning to visit Peru on December 9, 1943. It is earnestly hoped that His Excellency the Minister of Finance will find it possible to receive Mr. Orton at that time and utilize this visit to resume active negotiations looking to an early permanent adjustment.”

I told the Ambassador that I did not mean to be blunt in referring to this question, but that speaking in a friendly tone and manner, I felt obliged to say that Mr. Orton, representing the Foreign Bondholders Protective Council, had visited Brazil in an endeavor to effect a debt settlement; that after the attention of Brazil was brought fully to bear on the complicated and long overdue debt situation and the great benefit which would accrue to both countries upon adjustment, a full settlement of the debt situation had been worked out which placed the situation on a business basis in a manner beneficial to both countries. I told the Ambassador that Mr. Orton would be in Lima on December 9 for a similar discussion with the Peruvian Government. It was my earnest hope that the Peruvian Government, might see its way clear likewise to bring about a complete adjustment [Page 757] of the debt matter and in that connection emphasized the mutual benefit which would accrue to both countries and especially to Peru. The Ambassador said he was really glad to have me call attention to this matter; that he had not long since taken the matter up with his Government and had urged that Peru from the standpoint of its own interest should not neglect these debt matters. The Ambassador seemed wholly sympathetic throughout and said that he would transmit the message to his Government.

You may in your discretion make available to the appropriate authorities a copy of the memorandum which I handed to the Ambassador.

Please render Mr. Orton all appropriate assistance and keep in close touch with the Department by telegraph.

  1. Not printed.
  2. Manuel de Freyre y Santander.
  3. See vol. v, pp. 765 ff.