Memorandum by the Adviser, Office of Economic Affairs (Livesey)

Mr. Renwick is attacking the El Salvador debt adjustment by attacking the bases on which the Foreign Bondholders Protective Council operates. He does not mention the Council by name but attacks the agreement as unilateral because made otherwise than by agreement with a committee having legal power to represent bondholders.

Over the telephone the other day I read to Mr. Dana Munro of the Council the excerpts from Mr. Renwick’s letters which are quoted on page 2 of my memorandum of June 3. Mr. Munro said that the British have been indicating discontent with the adjustment, Mr. Berry of the British Council having told him that they had not understood they were giving up the Customs Agency security. Mr. Munro said that he had mentioned this point in his telegrams to London but the British said they had not taken it in. If the British representatives in El Salvador were to help Mr. Renwick’s campaign, they might persuade some new El Salvador official not to go on with the adjustment.

[Page 1125]

I am not sure whether it would be worthwhile to send my memorandum of June 395 to the Embassy at El Salvador as possible ammunition but I have drafted an instruction96 doing so.

The British Council does have legal power to represent holders of sterling bonds of El Salvador, having obtained deposit of bonds by the deposit agreement quoted on page 222 of the Securities and Exchange report of May 14, 1937 on protective committees for holders of defaulted foreign governmental bonds. The British Council does not always obtain deposits of bonds, but when it does no plan can be consummated without the approval of the investors at a bondholders meeting. Mr. Renwick is therefore leveling his attack at a point of cleavage between American and British practice in the Salvador adjustment negotiations.

The El Salvador Congress in 1932 rejected an adjustment agreement which the Salvadoran Minister of Finance had signed with an American Protective Committee. The reason set forth in the preamble to the resolution is as follows:

“Considering that the agreement …97 is devoid of legal effect because the legal personality of the said members of the committee as representatives of the bondholders is not set forth which is an indispensable requisite to make the agreement valid.”

Taking these two considerations together, it seems that Mr. Renwick shows a certain skill in trouble making.

  1. Supra.
  2. Not found in Department files.
  3. Omission indicated in the original memorandum.