814.51/587
The Minister in Guatemala (Geissler) to the Secretary of State
[Received May 27.]
Sir: I have the honor to report, that, as a result of good offices, exercised by this Legation, in harmony with the Department’s instruction and after active participation of President Chacón in the negotiation, the Secretary of the Treasury of Guatemala and the International Railways of Central America today signed a mutually satisfactory agreement, providing that the Government will, in payment of its indebtedness fixed at $2,515,000.00, issue 8% bonds to the company, at par, due May 1, 1948, amortization 2% per year, secured by a first lien on a 3% consular invoice tax. The contract is to be submitted to the National Legislative Assembly, today, with a fair prospect of its being approved before that body adjourns at the end of this month.
As of possible interest, I enclose copies of memoranda of conversations I have had in the matter, subsequent to my despatch 1497, of May 13, 1927, with Mr. Henry B. Price, Vice-President of the International Railways, Mr. Fred W. Wilson, the company’s special representative, and with President Chacón and Secretary for Foreign Affairs Matos.12
As shown by the memoranda, the agreement came about only after General Chacón had, in response to observations made by me, overridden the reluctance of Secretary of the Treasury Palma. Secretary for Foreign Affairs Matos also contributed very materially to the adjustment.
It seems, that one of the reasons for Mr. Palma’s disinclination to conclude a settlement with the International Railways, for submission at this session of the Legislative Assembly, was apprehensiveness that any contract made by him would be made a text for further attacks on him by the rather numerous members of the Assembly who are [Page 41] opposed to him, another reason being that he contemplated procuring a loan of perhaps ten million dollars, secured by a lien on the customs revenues, with the proceeds of which he meant to retire the Los Altos Railway Bonds, pay for the finishing of that railroad, settle with the International Railways, extinguish the internal debt and perhaps take up the British Deferred Coupons, or at least some of them. It is understood, that that project was urged upon him by customs expert Findley B. Howard.
The International Railways did not desire to await eventual conclusion of any such arrangement, since the project would not, in any case, be ready for submission to the Assembly before it has to adjourn under the constitution, and the next session might not occur till March 1928. Mr. Price and Mr. Wilson calculated, that, at that time, the Government would probably have insisted, as it did now, that, as regards the past, it should not pay interest on the greater portion of the debt. Hence, failure to settle the matter this month, would, they figured, have left uncertain the time and form of settlement, while almost certainly leading to a loss of $175,000.00 of interest and possibly more.
There is talk, that Mr. Palma is still inclined to contract for a $10,000,000.00 loan, secured by a lien on the customs revenues, with the idea of then retiring the bonds issued to the International Railways.
From the memoranda it will be seen, that I made clear to President Chacón what I had previously said to Dr. Matos, to the effect, that freedom is reserved as regards the Department’s attitude toward the terms of the contract. A similar statement was made by me repeatedly to Messrs. Price and Wilson. They said, that they expect to submit the contract to the Department very soon, and that they regret that it is not feasible to do so before the Assembly acts, but that they consider it very important to procure action during the few remaining days of the legislative session. They added, that, meanwhile, they have been striving to keep out of the agreement everything which might be deemed objectionable.
A tentative draft of the contract, as prepared by Mr. Wilson, was furnished me some days ago. However, in conferences which he and Mr. Price subsequently had with Government officials, several changes were made. A copy of the document as signed, will be procured and sent by the next mail.12a
According to my information, the agreement provides, that the revenue pledged, as security for the bonds, shall be collected by a fiscal agent in New York, named by the bondholders and approved by the Government, through a bank in Guatemala selected by the fiscal agent.
Secretary for Foreign Affairs Matos has shown me a schedule, according to which the three percent consular invoice tax, which was pledged [Page 42] to the Anglo and London–Paris National Bank, as security for bonds in the sum of $3,000,000.00, produced $1,150,163.28, the amount per semester varying from $212,000.00 to $252,000.00. The three percent tax now pledged to the International Railways has heretofore been collected by the Foreign Office and used for its support. It is contemplated, that some other revenue will be provided for that Department.
The Secretary for Foreign Affairs has told me, that, at a meeting of the Cabinet held during the evening of May 17, the settlement was pronounced satisfactory by all present, including the President, and that even Secretary of the Treasury Palma joined in that view and said that he is glad that the matter has been disposed of. Dr. Matos added an expression of appreciation of what I had done toward bringing about the result. Messrs. Price and Wilson have indicated to me, that they are likewise pleased.
I have [etc.]