811.71223/72

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

No. 9386

Sir: I have the honor to report the following observations by Finance Minister East regarding the national dollar debt and the postal debt which, having been made spontaneously in a conversation regarding another subject, may be of some significance.

After Dr. Bateman of the Foreign Economic Administration38 had departed from a dinner given by the Finance Minister, Mr. East remarked that the next important American visitor no doubt would be Mr. Rogers, representing the Foreign Bondholders Protective Council. After some hesitation, he stated that he had studied the question of amortization and servicing and felt himself in a complete quandary as to what he was going to say to Mr. Rogers; that Peru does not have adequate dollar exchange on hand nor any prospect of obtaining sufficient sums; and that he simply would have to describe the factual situation to Mr. Rogers and hope that Peru’s position would be fully understood. He described himself as unable to entertain any expectation of a settlement other than upon the most reduced scale, and even then it is certain financial difficulties will be encountered.

In reply to these statements it was suggested that there are many methods of obtaining funds and that certainly no insurmountable difficulty exists if there is a willingness to meet the obligations. It was mentioned also that Peru really ought to take up and solve this problem without further delay, in the best interests of Peru, since many foreign capitalists are interested in investing here but refrain from doing so in view of Peru’s record of rejecting settlements or of insisting upon drastic reductions. He really appeared to agree heartily with the thought that the expansion of Peruvian industry through the participation of foreign capital during the next ten years or so would more than compensate for any sacrifice in meeting the outstanding [Page 1572] obligations, but even so, he said, the Peruvian Government has simply been unable to devise means to obtain the necessary funds. He considered it impossible to float an internal loan for the purpose or to curtail projects for the expansion of industries, public works and transportation. It was mentioned that the budget of revenue is increasing rapidly from year to year and that even without diminishing the present degree of activity, the debt could be cared for. He doubted very much if Congress and the public could be brought to that viewpoint but added that it is a question for the Congress to decide.

The Minister stated that the Embassy’s letter of March 7, 1944,39 regarding the postal debt, referred to in despatch No. 9239 of March 15, 1944, was logical and easily understandable, but added that no funds are available for immediate payment and that his only recourse is to include a sufficient appropriation in the coming budget on which he is now working and which will be submitted at the proper time for the approval of Congress. He regretted that the American Government could not accept bonds at par, as he had received permission to settle by that plan.

The Minister’s statements represent nothing new apart from a recent confirmation of the old Peruvian attitude toward the debt question. Presumably the situation will remain the same so long as our methods of oral persuasion and free giving prevail over the system of bargaining to which the Peruvians are accustomed except when dealing with the United States.

The continuingly generous, even if meritorious from a political or social standpoint, expenditure of funds in Peru by other agencies of the United States Government naturally encourages the belief among the Peruvians that our Government is really more interested in contributing to Peru’s welfare than in pressing for the payment of Peruvian obligations to the United States.

The over-all metals reserve agreement soon will be up for consideration, and if it is extended without any attempt to impress upon the Peruvians the necessity of taking concrete action with reference to the debts herein referred to, it is felt that the Peruvians will conclude that only a few Embassy officers and officials in the Department are promoting the idea of debt settlement.

The Department will be interested in learning that a few days ago, when Dr. Bateman discussed with the Peruvian businessmen and officials interested in the mining industry, the question of increased prices to offset wage increases in the mining industry was brought up by Deputy Manuel Llosa. When Dr. Bateman informed the group that there was no possibility of such a development, Mr. Llosa inquired if it would not be possible for some of the other agencies of the American [Page 1573] Government interested in the “Good Neighbor” policy to make up the difference.

In making these observations the Embassy’s only purpose is opportunely to point out practical methods of bringing about really serious consideration by the Peruvians of outstanding debts and claims due the United States and American interests. The Embassy is still uninformed as to whether it has ever been the Government’s policy to use the procurement and service agreements as instruments for promoting the solution of the debt and other problems.

Respectfully yours,

Jefferson Patterson
  1. Alan M. Bateman, Assistant Director, Foreign Procurement and Development Branch.
  2. Not printed.