Foreign Relations of the United States: Diplomatic Papers, 1944, The American Republics, Volume VII

816.51/1188

Memorandum by the Chief of the Financial Division (Livesey)

[Washington,] January 6, 1944.

Mr. Dana Munro, President of the Foreign Bondholders Protective Council, called at the Department on another matter, fresh from a long conference with Messrs. Bustamante⁶⁴ and Valdés⁶⁵ of El Salvador. He said they were very good and decent to negotiate with, having shown not the slightest intention to go back on the understandings reached at their conference with him December 23,⁶⁶ although they found they had overlooked some fairly serious points.

The principal point was that they were surprised to find that payment for the arrears on unassented coupons would require $238,000. They were somewhat reassured when they recollected during the conversation that some $100,000 of this sum was already held by the Manufacturers Trust Company. However, they said that the remaining amount was too much to pay in cash and that they would have to spread payment for these coupons over a number of years. They did not recollect what had happened with funds sent [set] up under the 1933 agreement⁶⁷ to cover these coupons and would also check on them.

Another matter was the odd amounts of principal of funding bonds which would be required in some cases if the exact amount of arrears were capitalized into the principal amount of bonds. Various technical methods for issuing bonds only in round amounts of principal and paying the excess fractions in scrip were discussed. The difficulty is in part that the Minister of Finance⁶⁸ has some outstanding commitment that he would not issue any more scrip. It was not decided just what device could be used.

The Salvadorans brought up again the question of distribution of amortization, suggesting that the 45% allocated to the A bonds⁶⁹ should be made to serve both the A bonds and the funding bonds. Mr. Munro tried to reverse this and to have the whole 45% applied solely to the A bonds by including the amortization of the funding bonds in the 30% allocated to the C bonds. The Salvadorans rejected this, apparently calculating that the 45% applied to the A bonds would reduce their number so rapidly and maintain so strong a bid in the market that the price of the bonds would rapidly go up and thus make the amortization more costly. This would have been agreeable to Mr. Munro as making the offer more attractive to holders of A bonds who may raise objections to the relative treatment they receive in comparison with their treatment under the 1936 agreement⁷⁰ and to their contractual priority. The matter was finally compromised by providing that from 37½% to 45% should be applied to the A bonds and from 30% to 37% to the C bonds and the funding bonds.

Mr. Munro had taken thought to the sentence about the abolition of the Office of the Fiscal Agent in his letter of December 24⁷¹ and obtained its amendment to read to the effect that so far as the bondholders were concerned, they would not object to the abolition of the office. He said it was no function of the bondholders to agree to the abolition.

The letter of December 24 was withdrawn. A memorandum of agreement⁷² will be substituted as the basis for submitting the matter to the Salvadoran Congress.

Mr. Munro said that Messrs. Bustamante and Valdés had called on Sir David Waley of the British Treasury at the British Embassy at Sir David’s request. They were much offended by Sir David’s tone in exhorting them to pay and in telling them that otherwise the London market would never make any other Salvadoran loan. Mr. Bustamante replied he hoped so and regretted that London had not taken that decision much earlier.

Mr. Munro said that he had learned that, on the other hand, Mr. Barry, American Representative of the British Council of Foreign Bondholders, had talked again with the Salvadorans and on Monday, January 3, had telegraphed the Council that conditions had changed, an agreement like that made in 1936 was no longer possible and the Council should accept the Salvadorans’ proposal.

64. Ramón Arturo Bustamante, Salvadoran Under Secretary of the Treasury, Public Credit, Industry and Commerce.
65. V. Manuel Valdéz of El Salvador’s Economic Mission to Washington.
66. Regarding the understandings reached between Messrs. Munro and Bustamante prior to December 24, 1943, see Mr. Munro’s letter of December 24, 1943, Foreign Relations, 1943, vol. vi, p. 340.
67. A temporary agreement signed ad referendum April 5, 1933; final draft signed May 6, 1933, Diario Oficial, May 20, 1943, p. 1021.
68. Rodrigo Samayoa.
69. For the distinction between A, B, and C bonds, see third paragraph of despatch 1363, March 4, from San Salvador, p. 1119.
70. For text of the Readjustment Agreement of April 27, 1936, see Foreign Bondholders Protective Council, Inc., Annual Report, 1936 (New York, 1937), p. 373. For correspondence on this subject, see Foreign Relations, 1936, vol. v, pp. 572 ff.
71. Ibid., 1943, vol. vi, p. 340.
72. Infra.