825.51/3–1546
The Secretary of State to the Ambassador in Chile ( Bowers )
The Secretary of State transmits for the information of the Embassy copies of a note dated October 25, 194589 from the British Embassy at Washington and of the Department’s reply of this date,90 concerning the service of Chilean foreign bonds. There are also enclosed copies of a letter addressed by Mr. James Grafton Rogers, President, Foreign Bondholders Protective Council, Inc., October 29, 1945, to the Chilean Minister of Finance91 and of a translation of the Minister’s reply of December 7, 194592 on the same subject.
The following information is supplemental to that in the enclosures:
Mr. Rogers orally informed the Department that the Manager of the Caja de Amortización had also talked with American bankers in New York and had been impressed by their strongly critical attitude toward Chilean bond service practices. This may in some part reflect Mr. Roger’s efforts, which he regards as having been particularly effective in respect of the National City Bank, to foster a financial community atmosphere actively helpful to the Council’s efforts to clear up and regularize the South American bond situation. Mr. Rogers urged Mr. Fernández after rectifying the amortization practices to work for amending the adjustment of 1935 to provide for a fixed rather than a variable annual interest payment. The variable payment results in a certain speculative interest and discussion as the time for the annual declaration approaches, which periodically revivifies discussion and public criticism of the Chilean defaults. The whole unilateral set-up went against the instincts of the financial community. As it is unilateral, Chile has no American voice to defend it. Mr. Rogers urged, and Mr. Fernández cordially agreed, that the Caja de Amortización should not take a remote stand-off position toward the financial community and its criticisms but should write the Council periodically and frequently, giving information about the Chilean situation which would enable the Council better to deal with the numerous inquiries it receives regarding Chilean bonds.
[Page 594]Mr. Alfonso Fernández, Manager of the Chilean Caja de Amortización, visiting the Department said that in 1945 Chile had paid out of revenues accruing from 1944 about $4,500,000, of which $3,300,000 was for interest, $1,000,000 for amortization, and $200,000 for expenses, the Government had diverted $600,000 and there remained on balance $1,500,000–$2,000,000. The announcement for 1946 covered only interest. He was proposing to the Government that there be paid for amortization in 1946 100% of the 1946 quota plus the $1,500,000–$2,000,000 left over from 1945—a total of $4,500,000. He was also requesting that a very little be found in 1946 toward arrears of amortization. Department officers urged that a press statement be issued by the Caja as soon as the Chilean Government shall have taken a firm decision. Mr. Fernández agreed that this would be advisable. He said he had not talked with the British Council of Foreign Bondholders during his visit to London but hopes to revisit London later in the year.