Foreign Relations of the United States, 1947, The American Republics, Volume VIII

823.51/1–347

Memorandum of Conversation, by the Director of the Office of Financial and Development Policy (Ness)

[Washington,] January 3, 1947.

Participants:	Mr. Juan Chavez, Minister and Commercial Counselor of the Peruvian Embassy
	Mr. Livesey, OFD
	Mr. Ness, OFD

On December 27 Mr. Chavez called at my office to tell me that he was instructed to approach the Eximbank with a loan application covering construction of a zinc and lead refinery in the Santa River Basin of Peru. He said he was calling to determine whether the Department would object to such an application. I told him that he could of course approach the Eximbank but that I anticipated he would be there informed that the Bank could consider no additional credit so long as the present default on Peru’s bonded indebtedness continues unchanged. I reminded him that such a condition attached to the $25 million credit due to expire on December 31, 1946 and pointed out that it would be inconsistent for the Bank to extend other credits under the circumstances.

Today, having talked in the meantime to Mr. Maffry⁶ of the Eximbank and having had the reply I had anticipated, Mr. Chavez called again to clarify the nature of the condition which had been imposed on loans to Peru. In response to direct questions, I informed Mr. Chavez that (1) the policy in question was not confined to the Eximbank but represented the viewpoint of the State Department as well, (2) that the condition had been attached to the $25 million credit from its beginning and not, as he professed to understand, from the date of the breakdown of the Montero Bernales proposal of November, 1945.⁷

Mr. Chavez referred to the Section of the first Semi-Annual Report of the Eximbank to Congress dealing with “loans to governments in default” and inquired whether Peru was not in an exceptional position. He was told that such might be taken to be the case. He then inquired for the reason of this exceptional treatment, and was informed that by the early 1940’s the feeling had grown up in the Department that Peru was (a) well able to undertake debt-service resumption and (b) had persistently failed to do so. When Mr. Chavez objected that when the present (Bustamente) administration had assumed power it had early undertaken to correct the default situation and had accordingly sent the Finance Minister, Mr. Montero Bernales, to this country to negotiate with the Bond Holders Council it was then observed that the subsequent failure of the Peruvian Congress to ratify the agreement had only added weight to the earlier impatience with Peru.

Mr. Chavez left saying that he felt he had a clear understanding of the conditions attaching to Eximbank credits to Peru. (Incidentally, Mr. August Maffry, during the course of an NAC Staff Committee meeting yesterday afternoon, observed that the National Advisory Council might have occasion to reconsider shortly this government’s bond-default policy in light of a possible Peruvian application for credit.)

N. T. N[ess]

6. August Maffry, Vice President and Economic Adviser, Export-Import Bank.
7. For documentation on the Montero Bernales mission, see Foreign Relations, 1945, vol. ix, pp. 1358 ff.