The Chargé in El Salvador ( Gade ) to the Secretary of State

No. 2096

Subject: Delay in approval of foreign debt readjustment by Salvadoran Legislative Assembly.

Sir: I have the honor to refer to the Embassy’s despatches nos. 20536 and 2079 of October 3 and 12, respectively, on the above subject and to report that, despite the efforts of the Government, through the Ministry of Finance, to obtain approval of the terms of the offer leading to a renewal of service on El Salvador’s foreign debt, an influential group in the National Legislative Assembly continues to oppose the readjustment.

In addition to the several possible reasons previously reported in explanation of the Assembly’s attitude, it now appears that a new and more compelling argument is being advanced from outside the Assembly and that as a result a number of the deputies may be taking a stronger stand against approval of the Offer.

The new opposition is reliably reported to come from Dr. Carlos Menéndez Castro, President of the Coffee Growers’ Association, and from the conservative group of coffee growers whom he represents. They reportedly argue that if the readjustment is approved and service is renewed on the foreign debt, payments will be made from a special budget fund (for public debt retirement) which derives entirely from the proceeds of the export tax on coffee. This is in fact the arrangement made during the Martínez administration. Since the Menéndez Castro group has long opposed the coffee export tax, for a variety of [Page 1131] natural but not always justified reasons, it is said that they now oppose renewal of service on the foreign debt, probably on the ground that such action would perpetuate the present export tax arrangement.

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Respectfully yours,

Gerhard Gade
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