816.51/1200

The Ambassador in El Salvador ( Thurston ) to the Secretary of State

No. 1363

Sir: With reference to recent reports concerning a readjustment of El Salvador’s foreign debt and in connection with the concessions in interest rates which are to be made by American bondholders, I have the honor to report that records available here show that the Government of El Salvador has already paid $20,110,640 of the Foreign Loan of 1922, which amounted to nearly $21,400,000, and that it will have to pay approximately $25,000,000 more, even under the more favorable terms granted, if the original obligation is to be retired completely.

Records maintained by the Office of the Fiscal Representative under the Foreign Loan of 1922, in San Salvador, show that prior to the default of service on its debt as of January 1, 1938, the Government of El Salvador made payments on its debt annually for fifteen years beginning in 1923. The following table shows the amounts which El Salvador paid in dollars and the equivalent in colones at the rate of exchange then existing:

Year Loan Service $ Average Exchange Rate Loan Service ¢
1923 $441,466 200 ¢882,932
1924 1,757,529 200 3,515,058
1925 1,750,168 200 3,500,336
1926 1,787,928 200 3,575,856
1927 1,869,968 200 3,739,936
1928 1,850,448 200 3,700,896
1929 1,835,488 200 3,670,976
1930 1,811,568 200 3,623,136
1931 1,792,088 206 3,691,701
1932 520,555 254 1,222,098
1933 1,084,940 295 3,200,573
1934 1,058,494 259 2,741,499
1935 850,000 250 2,125,000
1936 850,000 250 2,125,000
1937 850,000 250 2,125,000
Total $20,110,640 ¢43,439,997

Bonds of the Foreign Loan of 1922 originally sold in the United States had a face value of $17,493,985 distributed as follows: $6,000,000 in 8 percent bonds of Series “A”; $10,500,000 in 7 percent bonds in Series “C”; and $993,985 in 4 percent certificates of deferred interest. In addition, 6 percent bonds of Series “B” valued at 853,140 pounds sterling (or $3,897,729 at a $4.85 exchange rate) were taken by British bondholders.

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Although the Government of El Salvador has not yet published a statement showing its public debt position at the end of 1943, it is estimated that the total outstanding obligation on that date exceeded $18,300,000, of which about $5,500,000 represented interests accumulated since January 1, 1938 at the 1922 contract interest rates. Since half of this accumulation is to be cancelled under the new readjustment agreement, it will be observed that approximately $15,500,000, in addition to future interest payments, remains to be paid. Since the interest rates under the 1922 contract are now to be halved, and annual amortization payments are to be made, it would appear that approximately $10,000,000 more in interests will have to be paid in service of the debt before it may be definitely retired.

Respectfully yours,

Walter Thurston