The Ambassador in Peru ( Cooper ) to the Secretary of State
[Received 4:48 p.m.]
1276. At a meeting on December 20 with Dr. Tudela and Minister of Finance, the latter showed me his Government’s latest proposal for settlement of dollar bonded debt providing for graduating interest payments from one-half percent first 2 years to 2 percent at end of 10 years and same rate thereafter; amortization payments starting with one-half percent and graduating to maximum 1½ percent at end 10 years and thereafter. The plan also provided for deposit of soles in Reserve Bank for amortization payment [apparent omission] conversion into dollars depending on Peru’s balance of payments. I informed them that I would send it to the Department for transmittal to Council provided they wished me to do so, but that I could tell them in advance the Department’s comment would be adverse and that Bondholders Council would reject it at once. I also pointed out that the proposed servicing for first year approximated only 15 percent of soles 11,200,000 included in Peru’s budget for 1946 and soles 10 million which Senator Arrus, a member of Senate Finance Committee, informed me a few days ago would be included in 1947 budget for this purpose. They said it was their considered judgment that it would be difficult to obtain Congressional approval of any plan providing for interest payment in first year in excess of one-half percent. They did not ask me to send their proposal to Department.
I again invited their attention to views of Bondholders Council that a settlement of less than 3 percent interest would be unacceptable to bondholders. I advanced other arguments in defense of Council’s position and after a long exchange of views on these and other points, Minister and Dr. Tudela indicated they would recommend debt settlement in accordance with scale provided for in Montero Bernales agreement except that Peru would pay only one-half percent first year and 2½ percent interest at beginning fifth year and thereafter plus noninterest bearing script of one-half percent payable termination amortization schedule. I again told them that I was confident that Bondholders Council would not accept initial payment of one-half percent. They then indicated they might propose settlement based on Montero Bernales scale but with interest of 2½ percent with one-half noninterest bearing script.
While we were unsuccessful in reaching an understanding on the one-half percent they said that they would submit matter to President [Page 1264] Bustamante on December 23 and would arrange for me to meet with them and President Bustamante next week.
The Peruvians have at no time made Export Import Bank loans a a condition to debt settlement.
I have repeatedly informed Peruvians debt is an obligation to private bondholders US as represented by foreign Bondholders Protective Council and that I am not authorized to sponsor or accept any debt settlement proposal (Deptel 987, December 20), but that Department would cooperate by transmitting to Council any proposal Peru may make.