[Enclosure]
Proposal for Settlement of Direct Funded Debt of
Colombia
The proposal relates to the approximately $45,400,000 of outstanding
direct funded debt of Colombia, it being understood that, if a
settlement can be agreed to, the matter will not be made public
pending an attempt to negotiate a settlement of the relatively
insignificant outstanding amount of Government guaranteed
Agricultural Mortgage Bank bonds.
The proposal is as follows: One-half of the 5-years’ interest arrears
would be funded, thus increasing the principal amount of the debt by
approximately $6,500,000. Taking into account cancellation of
repatriated bonds and amortization under the temporary debt
settlement, the principal amount of the debt after such funding
would be about $50,500,000. The settlement would call for 3½ percent
interest, and any saving in interest as a result of amortization
would be used to retire bonds, thus making a fixed annual charge of
about $1,767,500. In addition, there would be a sinking fund
obligation to retire a minimum of $600,000 face amount of bonds a
year, which would require about $200,000 a year on the basis of
current market prices for the bonds.
[Page 701]
The maturities would be appropriately
extended, presumably in the neighborhood of 1970 or 1975.
Such an arrangement could be expected to retire the bonds by maturity
and would not require for full service, except upon the near
approach of maturity of the bonds or given an extraordinary recovery
of Colombia’s international credit standing, much in excess of
$2,000,000 a year unless the bonds should increase in price over
current levels to an extent which is not to be anticipated.
In the event that a settlement along the above lines should appear
practicable, the possibility of some modification in the sinking
fund requirement, in the nature of an ultimate concession by the
bondholders to bring about agreement, should be considered as open
for future consideration. For instance, a waiver or reduction during
the first few years of the settlement to guarantee that the total
annual cost to the Colombian Government during these years would not
be in excess of $2,000,000, or, a flat reduction operative
throughout the life of the settlement, in the sinking fund
requirement that $600,000 face amount of bonds be redeemed annually,
might be possible without destroying the substance of the
settlement. As a condition of any such ultimate concession in
connection with the sinking fund, however, Colombia would guarantee
minimum service in dollars of $2,000,000 a year during the period in
which the concession was operative.
