The Ambassador in Peru (Cooper) to the Secretary of State
[Received 11:25 p.m.]
1273. Following President Bustamante’s suggestion I met on December 18 with Dr. Manuel Vásquez Diaz, Minister of Finance and Dr. Francisco Tudela, President Central Reserve Bank, in regard to debt settlement. Dr. Tudela opened the discussion by stating his Government was surprised our Government should make Export Import Bank loan to Peru contingent upon satisfactory settlement dollar bonded indebtedness in view our policy with respect to Chile and Mexico,91 to whom we have made substantial loans despite unsatisfactory debt settlement arrangements. He also referred to the liberal provisions of our loan to Great Britain.92 Dr. Tudela, apparently acting as spokesman for the Peruvian Government with the Minister of Finance, also referred to recent Argentine-Chilean commercial-financial treaty and indicated hope of Peruvian Government to avoid a similar arrangement and to continue to maintain strong economic relations with the United States. (See Embassy’s telegram 1269, December 18.93) The Minister of Finance stated again that his Government considers Montero Bernales debt plan unacceptable and impossible to pass through Peruvian Congress and that a new offer was necessary to more nearly accord with Peru’s present financial situat’on and secure Congressional approval. Both emphasized Peru’s urgent need for Export Import Bank financing for internal improvements, especially irrigation, and importation of machines. A written proposal for a loan of $200,000,000 was somewhat timidly presented to be arranged simultaneously with settlement of debt. I replied that while I was sure my Government desired to cooperate with Peru in straightening out her economic problems, yet in view fact Peru has been in default on its external dollar indebtedness for more than 16 years, my Government was not in a position to request an Export Import Bank loan until Peru settles its existing debt. I further stated that in my opinion Peru’s credit would be harmed by giving publicity to any such proposal as was offered, whereupon the proposal was withdrawn.
In accordance with my recent telephone conversation with Secretary Braden, I told them that the least we could accept would be a plan [Page 1262] providing for interest at 2½ percent with nonbearing interest script of ½ percent and amortization of principal within 50 to 70 years. While they said that the terms would be difficult to meet in view of the serious shortage of exchange in Peru and that it would be difficult to convince the Peruvian Congress of the need for a debt settlement at this time in view of the shortage of foreign exchange, the Peruvian Government is so urgently in need of new credits that they will reconsider the matter and will meet with me tomorrow afternoon when they will submit a counter-proposal.