823.51/1550b: Telegram
The Secretary of State to the Ambassador in Peru ( White )
542. The Under Secretary60 will hand the Peruvian Chargé d’Affaires61 the following aide-mémoire at 11:15 this morning:
“Negotiations are now in process in Lima between the Peruvian Government and the Honorable James Grafton Rogers, Vice President of the Foreign Bondholders Protective Council, Incorporated, looking to the adjustment of the Peruvian dollar-bond issues which have been in default both as to principal and interest since 1931. On December 6, 1943 the Secretary had discussed this matter with His Excellency, the Peruvian Ambassador, the late Don Manuel de Freyre y Santander, and upon the occasion of their talk he had left with the Ambassador a memorandum62 rehearsing the recent history of discussions on the subject. The memorandum pointed to the improved financial situation of Peru and how failure to resume active negotiations looking to resumption of service would not be understood in the United States and would react unfavorably not only in financial circles but also among the large body of holders of these defaulted bonds who were scattered widely throughout the population of this country. The Secretary had consequently urged the Peruvian Government to resume active negotiations looking to an early adjustment of the matter with the result that, with the agreement of the Peruvian Government, Mr. Rogers had gone to Lima to carry on discussions with the Peruvian Minister of Finance and other appropriate representatives of the Peruvian Government.
“The Department was distressed to learn that Finance Minister East had suggested as a basis of adjustment the payment of a service annuity of 4 million soles which, at the present rate of exchange would permit payment of less than three-fourths of one percent interest on the principal amount of the bonds but this annuity, which is already provided for in the Peruvian budget, would be offered to bondholders solely on condition that the Bondholders Council should accept a reduction of about five-sixths in the face value of each bond and that there should be no payment in respect of arrears of interest. The Foreign Bondholders Protective Council, Incorporated, has informed the Department that its acquiescence in any settlement of this kind would be entirely out of the question.
“The Department was seeking an amicable settlement which would redound to the interest of cordial relations between our two Governments and which would at the same time take into account the good of the very substantial United States private interests involved and which had loaned their money in good faith.
“All of the Department’s information pointed to Peru’s being in a greatly improved financial situation which should enable it to make a reasonable offer of adjustment on the principal amounts involved. The possibility of the present negotiations being broken off was unfortunate and it was hoped that they could be continued in a friendly [Page 1582] and understanding manner until an early and satisfactory agreement had been reached. It was the firm belief here that in all justice such agreement would have to be based on recognition of full principal amounts and equitable service thereon.
“The Department had, of course, had an opportunity to observe a large number of defaulted bond adjustments and in no case comparable to the Peruvian one had there been any cut in principal amount without the bondholders being given an alternative settlement involving full eventual payment of principal amount. The tender by Peru of a settlement along the lines suggested by Finance Minister East could not but elicit a very bad reception in the United States which would almost certainly be injurious to Peruvian credit. Such an offer would also be one which would have a most unfavorable reaction in the Department and United States Government circles in general.”
The Foreign Bondholders Protective Council, Incorporated, expects to send Rogers further instructions later in the day.
- Edward R. Stettinius, Jr.↩
- Eduardo Garland.↩
- Memorandum of December 6, 1943, quoted in telegram 1335, December 6, 1943, 8 p.m., to Lima, Foreign Relations, 1943, vol. vi, p. 755.↩