Memorandum of Conversation, by the Adviser of the Office of Financial and Development Policy (Livesey)

Participants: Honorable Hector David Castro, Ambassador of El Salvador; Mr. Cochran, CCA;35 Mr. Corliss, FN;36 Mr. Livesey, OFD

The Ambassador came in at the Department’s request.

Mr. Livesey said that there were two financial items, quite independent in their origin, of which it was desired to inform the Ambassador. The Department had already taken action on both. The first was the defaulted bonds situation. He recited the developments since last March including the recent discussion with Mr. Rogers, Acting President of the Foreign Bondholders Protective Council, which had resulted in the Department’s instructing the American Embassy at San Salvador on October 5 to give vigorous support to Mr. Rogers’ effort to reactivate the bond settlement of 1944. This recital was in considerable detail and may be regarded as bringing the Ambassador fully up to date on this matter.

The second item was the request of the Export-Import Bank that the Department make a recommendation as to assent by the Bank to a credit commitment requested by the International Standard Electric Company for financing the telephone installation in El Salvador.

The Ambassador was told that when the Bank’s inquiry came under consideration in the Department, there developed a surprising volume of opinion that the time had come for the Department to reconsider the policy of the Bank in respect of extending credits to governments which were in default on dollar bond issues. The thought was that the time had now come when the Bank should give more attention to the possible effects on American interests of appearing to ignore existing default situations. This matter had been discussed at considerable length in a meeting yesterday and it had been decided that the Department should at least call to the attention of the Salvadoran Ambassador the relationship between these two almost simultaneous [Page 1077] questions. It was not desired to do this in circumstances which might make it appear that the Department was using the credit matter as a means of exerting pressure on El Salvador to take some action on the bonds. The Department had therefore cleared the Bank’s inquiry before mentioning the matter to the Ambassador. The effect of the clearance was to enable the International Standard Electric Company to negotiate with the Salvadoran authorities with assurance that it could finance its contemplated transaction on credit obligations of El Salvador.

The position was that the Department had issued its instruction of October 5 as a sincere and vigorous expression which it would not wish to have counteracted in any way by its willingness to approve a credit to El Salvador for a purpose which it deemed to be sound and desirable. On the other hand it wished to bring out the fact of the existence of a growing volume of doubt as to the wisdom of the Export-Import Bank granting such credits to countries in unremedied default on their bonds. Reference was made to the recent reorganization of the legal structure of the Export-Import Bank, by the Export-Import Bank Act of July 31, 1945,37 with provision for two members of the Board of Directors to be members of the opposition party, and with the establishment of an obligation for the Board to report semiannually to Congress and to the recent provision in other legislation whereby the Bank’s operations are to be audited annually on commercial lines by a separate agency also reporting to Congress. All these were manifestations of an increased interest of Congress in supervising the Bank. The question of the Bank’s relation to bond defaults would inevitably come before the new Board of Directors not long after it takes charge of operations, and this was a matter to which the Department must give consideration.

The Ambassador said that he had lost sight of details of the bond situation over the past few months. He had always believed that El Salvador should make payments on its bonds and he hoped that this might be arranged in the near future. The time of year is not propitious but the Salvadoran Congress will still be in session and he hoped that something could be done before the end of the year. He appreciated what had been said about the question of policy concerning the Bank’s relation to default situations and would report the conversation to his government and thought he might do so in a way which would result in his obtaining full information about the present situation as affects the bonds. There has been a recent change in the Minister of Finance38 and he did not know that Mr. Echavarria, the Under [Page 1078] Secretary who had been in communication with Mr. Rogers, is still in office.

Mr. Livesey said that the Department’s instruction to the Embassy had gone out so recently that the Embassy could hardly have taken action on it. The instruction had given the Embassy discretion as to time and opportunity for taking the matter up. The Department had not intended to take the matter up at this time with the Ambassador of El Salvador had it not been for the coincidence of the Export-Import Bank’s inquiry, which made it desirable to acquaint him with the relationship between the two matters so that the one might not tend to defeat the other. The Department would be very glad for his support of its efforts on behalf of promoting negotiations between his Government and Mr. Rogers.

  1. William P. Cochran, Jr., Chief of the Division of Caribbean and Central American Affairs.
  2. James C. Corliss, Assistant Chief of the Division of Financial Affairs.
  3. 59 Stat. 526.
  4. José Esperanza Suay became Minister of Economy (formerly Finance) on October 8. He succeeded Carlos Guirola, whose resignation had been announced on September 14.