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

No. 1716

Sir: With reference to the Department’s telegram No. 159 of June 10, 6 p.m., I have the honor to report that the Department’s views regarding the recent Salvadoran bond settlement have been conveyed by Mr. Ainsworth1 to the Minister of Finance, Dr. Héctor Escobar Serrano, who has affirmed the intention of the present Provisional Government to conclude the negotiations necessary to implement the plans already agreed upon for a readjustment of and resumption of service on El Salvador’s foreign debt.

Dr. Escobar Serrano stated that he thought that the plan already negotiated (“but with some small details still to be worked out before an offer can be made”) was a good one, and that the Salvadoran Government intended to carry it out. He said that the Manufacturers Trust Company’s protest “was to be expected and was natural”, but that he does not find himself in agreement with Mr. Renwick’s views concerning the recent bond settlement.

With regard to Mr. Renwick’s contention that a readjustment of the terms of the debt should not be made with the Foreign Bondholders’ Protective Council, inasmuch as that organization does not represent the bondholders, Dr. Escobar Serrano stated that Mr. Renwick apparently has forgotten that when the Salvadoran Bondholders’ Protective Committee dissolved, it turned over its records to the Council and recommended to bondholders that they accept the intermediation of the Council in the future.

On June 1st, in response to various articles which appeared in the local press, among them several concerning the actual size of the foreign debt, the Ministry of Finance issued a public bulletin which included the following statements:

“The external debt on December 31, 1931 amounted to $17,393,399.50, which has been reduced considerably and not increased as the public has been informed.

“The Ministry of Finance is at present negotiating with the Foreign Bondholders’ Protective Council of New York to arrive at a new agreement. This arrangement will be beneficial for the country, and as soon as it has been concluded details will be made known to the public, as well as exact information concerning the amount of the external debt.”

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This public statement at first appeared to be simply informative and it was not regarded as a definite statement of policy. It was believed at that time that it had not been decided definitely whether the Provisional Government should properly take final action in this matter. Around June 1, President Menéndez2 had suggested to Mr. Agustín Alfaro, who had a part in the 1936 Readjustment Agreement and was Auditor General of the Republic for several years, that he consider handling the matter during his forthcoming visit to the United States, but this was only a preliminary gesture.

During the interview Dr. Escobar Serrano said that the statements contained in the Ministry’s bulletin above referred to could be considered as a definite statement of the intention of the present Ministry to carry out the negotiations already far advanced and if possible to conclude them. He also stated that he did not regard this matter as a political question and that he believed that the Provisional Government should carry out the plan without delay.

Dr. Escobar Serrano’s principal problem is to find a competent person to continue the negotiations, which include making financial arrangements with the Manufacturers’ Trust Company and the National City Bank of New York, the preparing and printing of new bonds, the making of an offer to the bondholders and other details. Mr. Arturo Bustamante does not wish to accept any public mission because of the public feeling against him here, and Mr. Luis Alfaro is unwilling to leave the Central Reserve Bank, of which he is President, inasmuch as his General Secretary (Mr. Manuel Valdés) is still in Washington. Dr. Escobar Serrano is continuing his discussions with Mr. Agustin Alfaro, but it is unlikely that Mr. Alfaro will undertake this charge. He strongly favors an immediate resumption of service on the foreign debt, and it is believed that his objections to the plan already negotiated are based entirely on the manner in which it was presented, as a “take it or leave it” proposition but he apparently does not wish to represent El Salvador officially because of the possible political repercussions.

Respectfully yours,

Walter Thurston
  1. H. Gardner Ainsworth, Third Secretary and Vice Consul in San Salvador.
  2. Andrés I. Menéndez assumed the Presidency May 9, 1944.