823.51/5–2247

The Chargé in Peru ( Ackerman ) to the Secretary of State

confidential
No. 1624

Sir: I have the honor to report that during the course of a rather lengthy conversation with the Minister of Foreign Affairs when making [Page 1008] my first official call on Monday, May 19, he expressed keen disappointment that the American Foreign Bondholders Council had reacted unfavorably to the legislation enacted by the Peruvian Government for the resumption of interest payments on the dollar level. He is still hopeful that the Peruvian representative in the United States will be able to convince Mr. Rogers and his associates that the payments set forth under the Peruvian legislation represent the maximum sacrifice which Peru can make and that this evidence of intention to resume services on the debt will be interpreted as a sincere desire of the present administration to solve a problem which it inherited. Should the Council continue its objections, the Minister stated, the Peruvian Government is determined to approach Bondholders direct. This decision has been reached after consultation with the New York law firm of Sullivan & Cromwell. It is the understanding of the Minister that the Central Hanover National Bank has signified its willingness to act as the agent of the Peruvian Government for making payments against the bonds.

The Minister also referred to the discussions being held in Washington concerning a $20,000,000 stabilization loan. All of the data requested by the Treasury Department have been supplied except as pertains to Government budgets for the next several years.

As the Congress has the final word concerning appropriations and as, obviously, future developments cannot be foreseen with accuracy, the only data which could be supplied in answer to questions on future budgets had to be of a general instead of a specific nature. The Minister expressed the hope that the information supplied and that which Ambassador Cooper can give concerning the existing situation and the basic soundness of Peruvian economy will induce the Treasury Department to take early favorable action on the pending application. Unless Peru can obtain support for the sol it will be extremely difficult to arrest present inflation, to maintain the present economy or to provide for an expansion to meet growing needs. If this is not done the Minister fears the present social unrest will reach dangerous proportions. Although aware that stabilization loans are usually short term credit operations, he side-stepped an answer to my question as to whether Peru would be able to repay such loan at the end of 12 or 24 months.

The Minister expressed his sincere appreciation for the favorable comments made by Ambassador Cooper to the press concerning the Peruvian situation and stated that he had telegraphed to the Ambassador personally thanking him for his kind words.

Respectfully yours,

Ralph H. Ackerman