Memorandum by the Chief of the Division of North and West Coast Affairs (Espy)
Subject: Proposal of the Bolivian Government for Renewal of Service on its Defaulted Dollar Bonds
Mr. James Grafton Rogers, President of the Foreign Bondholders Protective Council, Inc. has informed the Department that on Friday morning, June 25, 1948 the Foreign Bondholders Protective Council, Inc. gave its approval to an offer of the Bolivian Government for the settlement, on an adjusted basis, of Bolivian defaulted dollar bonds. These bonds have been in default since 1931.
The settlement provides that service will be resumed on the bonds totaling some $59 million dollars as of January 1, 1949. An additional amount of $100 will be added to each $1,000 bond to cover all interest in arrears (this would represent approximately 8% of the 18 years of unpaid interest). The bonds will bear an interest rate of 1% for the first two years, 1½% for the second two years and beginning with the 7th year and thereafter 3%, with 1% payment for amortization. The Bolivian Government beginning with 1949 will pay annually to a fiscal agent in the United States the sum of at least $1 million 5 hundred thousand dollars for service of the interest and principal of the bonds. This amount will, of course, be larger during the first six years than the amount necessary to cover the interest during those years and the additional funds will be used to buy up bonds on the market in New York. Mr. Rogers anticipates that possibly a half of the bonds outstanding will be bought up in this fashion.
The proposed plan must be ratified by the Bolivian Congress. It is understood it will be submitted to the Congress during its session beginning August 6 this year.1
Two points still remain to be settled are: (1) The length of maturity of the bonds and (2) Whether new bonds should be issued or the old bonds stamped to show the new rates of interest. With respect to the first point the Bolivians desire a long period of maturity of possibly 46 years or more, while Mr. Rogers thinks that 30 years and at most [Page 334] 36 years should be provided. It was decided, however, that these two questions could be resolved later on, after Congressional ratification.
On Thursday, July 1, the Bolivian Government will issue an announcement of the offer to the New York press through the Bolivian Consul in New York.
In La Paz’s telegram No. 265, June 14,2 Ambassador Flack expressed the hope that the Department “appropriately record the importance of Bolivia’s desire to clear its credit record after eighteen years of default.” All things being considered this agreement reached between the Bolivian Government and the Foreign Bondholders Protective Council, Inc. is a favorable development and one which it is believed does merit official acknowledgment by this Government. It is therefore recommended that the Secretary at his press conference on Thursday, July 1, make a short statement expressing the gratification of this Government. Attached is a suggested draft of that statement.3