811.516 Export-Import Bank/8–1248: Telegram

The Secretary of State to the Ambassador in China (Stuart)

1178. On Aug 11 Board Directors Eximbank considered request Chinese Amb that remaining payments principal $33 million cotton credit be postponed beginning Aug 15 for period 6 months interest payments to continue as heretofore (urtel 1491 Aug 12). After considerable discussions with representatives Bank China Eximbank reached agreement with reps and approved following arrangement which considered best solution of problem presented by China’s inability to meet outstanding maturities estimated about $21 million: (1) Eximbank to recall before Aug 15 cotton drafts now held by various commercial banks (2) Drafts falling due on or before Aug 14 to be paid in full by Bank China NY agency together with accrued interest (3) Interest accrued on drafts maturing on or after Aug 15 to be paid in full by NY agency Bank China on that date and (4) Maturities of principal of drafts outstanding due on or after Aug 15 to be extended and adjusted through supplemental agreement which [Page 382]will provide for payment thereof in approx equal monthly installments from Feb 15 to Oct 15 1949 with interest at 2½ percent.

No publicity is to be given foregoing.

Following for secret info Emb and Treas Rep as minimum condition of and as consideration for extension maturity cotton drafts Bank China NY agency to file with Eximbank a letter to Irving Trust Co instructing latter to sell securities Bank China pledged to and held by it and to pay to Eximbank net proceeds such sale over and above amount then owing to Irving Trust under its overdraft with Bank China it being understood that Bank China shall on last working day each month submit to Eximbank statement any change or changes in securities held by Irving Trust since date last previous statement together with amount indebtedness to Irving Trust then secured by them and that Eximbank will not present letter of authorization and direction to Irving unless default shall have occurred in payments on cotton drafts as readjusted or certain other contingencies such as receivership shall have occurred.

Rep Bank China informed Eximbank that securities in custody Irving Trust amount to $42 million and are pledged as security for overdraft privilege of $25 million of which about $14 million was being used as of Jul 21.