825.51 Bondholders/3–1048

Memorandum of Conversation, by the Acting Chief of the Division of North and West Coast Affairs (Espy)

Participants: Ambassador Flack
FN—Mr. Corliss
NWC—Mr. Johnson, Mr. Espy
Mr. James Grafton Rogers, Chairman of Foreign Bondholders Council

During the course of his call on NWC today Mr. Rogers mentioned the negotiations for the settlement of the Chilean dollar indebtedness. He said that over a month ago all points and provisions in a settlement agreement had been reached with the sole exception of the maturity date of the new refunding bonds. This one point had still not been agreed upon and it was not known how long it would take to resolve it. He explained that the point seemed to be of a minor and insignificant importance but that it was not such in the considered opinion of the American financial centers. In fine, the Chilean Government (Sr. Alexandri [Alessandri])1 desired that the length of the maturity of the bonds be something over 50 years in order that the payments annually on the principal of the bonds be sufficient to amortize them by the date of the maturity. Mr. Rogers and the Foreign Bondholders Council were insisting that the maturity of the bonds be no greater than 36 years. Originally a period of 30 years had been set but this was increased by 6 additional years in an effort to meet the Chilean desire. It was recognized that the annual payments on the principal, provided for under the agreement, would not be sufficient to meet the entire amount of the principal within 36 years, and the residue would have to be refinanced by new bonds at the end of that time.

Mr. Rogers said that it was difficult to explain but that all the financial experts from whom he had sought advice had declared that foreign bonds on the United States market of over a 30 year maturity period are severely discounted. Accordingly if the period of the bonds exceeded this length of time, Chilean credit in the United States’ [Page 424]financial markets would not receive the confidence that was deemed essential for a satisfactory settlement of the Chilean bonded indebtedness. Mr. Rogers felt that this situation would in turn result in a financial loss of a number of million dollars to Chile on the total settlement of the debt.

Mr. Rogers gave no indication of when or how this impasse would be resolved.

  1. Jorge Alessandri, Minister of Finance.