823.51/12–1946

The Secretary of State to the Ambassador in Peru ( Cooper )

secret

987. A dominating feature at the moment reur 1269, Dec. 1894 and 1273, Dec. 19, is fact that Council polled and unanimously rejected 2½ percent proposal. Dept can not control Council’s acts or public statement it would have to make on any Peruvian debt proposal. In circumstances Dept not in position to “accept” or sponsor any proposal Council has not accepted by formal action. Most Dept could do on any unilateral proposal would be to use its good offices with view to persuading Council to issue moderate rather than harsh statement to bondholders thereon. It should be emphasized constantly to Peruvians that you can not “accept” any debt settlement proposal. Dept will gladly transmit Council any counter proposal Peru may make but only Council can accept it.

Dept can establish no direct relation between debt settlement and Eximbank credit except that under present circumstances a proposal reasonably satisfactory to American financial opinion is sine qua non for consideration by bank of credit application. Dept appreciates and approves your reply to Tudela about harmful effects of proposing bank credit to be arranged simultaneously with settlement of debt. Any public suggestion of bartering an Eximbank loan for a debt settlement might in fact be disastrous. Consideration of any such proposal by Dept ultra vires. Statutory lending authorities will consider loan application only after Peruvian credit standing strengthened by action on bond default.

Byrnes
  1. Not printed.