821.51 Bondholders/8–1447: Telegram

The Chargé in Colombia (Warner) to the Secretary of State


536. ReEmbtel 364, May 24.22 Welsh23 and Barranca24 latter representing Citibank Farmers Trust Company,25 returned US last week after several days in Colombia on debt negotiation. While here Welsh attempted influence Rogers to telegraph Colombian representatives Carlos Lleras Eestrepo and Esteban Jaramillo advising them reopen negotiations in view new bondholder opposition. This Rogers apparently refused to do but Welsh prevailed upon two or three trustees to wire Minister of Finance their nonconformity with Rogers agreement terms. Welsh and Citibank then appointed Dario Echandia as representative and stated preliminary steps toward bringing suit against the municipality of Cali. Later Echandia advised Welsh against suit to which he agreed temporarily.

During two conferences Welsh subsequently had with Lleras Restrepo latter first refused reopen negotiations whereupon Welsh reports he threatened publicity in United States regarding:

Colombian purchase of approximately 50% outstanding bonds during same period Office Exchange Control blocked transfer of accumulated services to American bondholders.
Regarding Welsh’s belief that capacity of Colombian debtor entities to pay is three or four times better now than when loans were originally made and considering 50% bond repurchase is actually six or eight times better and
That Colombian banks had made loans to departments and municipalities using pledges revenues of US loans. During second conference Lleras is reported to have informed Welsh he would write Rogers for his recommendations concerning renewal negotiations and that Lleras had seen the President who agreed call Governors and Mayors within 10 days.

Yesterday Lleras on President’s instructions called at Embassy leaving copy his and Jaramillo’s letter to Rogers dated August 12. Letter explains that project is now before Congress providing government guarantees on refunded bonds accordance with Rogers agreement: [Page 574] That Welsh and trustees have been asking Colombians to reopen negotiations as follows:

After agreeing with Rogers on fair and practical basis cannot commence new negotiations with every group bondholders wishing obtain more favorable conditions, which practice would prolong situation indefinitely.
Although willing to discuss agreement terms with trustees, Colombia does not believe even now that Welsh opinions representing small group of bondholders could be sufficient cause deny Rogers proposal.
Department assemblies recessed until next year; reopening negotiations would require special session to request authority for entire new basis of agreement.
It is Colombian considered opinion that such authority should not be granted.
In view of new municipal elections special sessions of assemblies at this time would risk undesirable political complications.
If necessary present new project for federal guarantees to Congress there would be risk of bill not passing this session.
Would be difficult obtain authority open negotiations ad referendum and such steps would be necessarily prolonged.
Manner of reopening negotiations under threats legal action and publicity campaigns would change cordial atmosphere of previous negotiations.
Colombia believes Rogers plan fair and is sure large proportion bondholders willing accept it.

Letter adds that Colombian representatives not disposed recommend terms Welsh settlement particularly under pressure of Welsh alternatives. Letter nevertheless requests Rogers opinion on reopening negotiations and states discussions with trustees will be postponed until answer received.

Lleras was told that matter was one between bondholders and debtor entities and that consequently Embassy position was only on sidelines. Lleras explained that he hoped Embassy could reinforce through knowledge local conditions Colombian contention of risk of prolonged complications and delays by not proceeding under Rogers agreement.

Although Welsh’s stiffer terms may be fully justified by present financial situation in Colombia, Embassy does believe that reopening negotiations would cause indefinite delay and create atmosphere of general resentment here which might adversely affect other important American activities. Reopening negotiations would most likely have political repercussions adverse to President Ospina and his National Union Government, which has just completed first and difficult year in office. While growing Colombian desire to reestablish nations public credit is so strong that terms better than those provided for in Rogers agreement might eventually be obtained, Embassy believes that be [Page 575] cause of the delay, risk, hard feeling and other factors involved it would be advisable to settle this long, drawn out matter promptly even though on basis of Rogers agreement.

  1. Not printed.
  2. Chicago investment banker.
  3. Trustee for Cali, Caldas, and Antioquia bonds.
  4. Affiliate of the National City Bank of New York.