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

823.51/1548: Telegram

The Ambassador in Peru (White) to the Secretary of State

Lima, May 10, 1944—noon.
[Received 8:08 p.m.]

618. From Rogers to Bondholders Council. East finally at the Sixth Session held Monday presented Peru’s proposal which is to divide principal amount and annual contractual service of both dollar and sterling bonds by 6½ this being number of soles currently paid for one dollar. Proposal in effect reduces principal of dollar bonds to about 13 million, with proportionate reduction on annual service, but East mentioned some readjustment of service as between issues to be negotiated and also stated that the item of four million soles for foreign debts constantly carried in current national budgets would suffice for all service. Proposal may therefore intend to cut annual service to one-tenth contractual rate if limited to amount of dollars available from budget item mentioned. Proposal cancels interest arrears. My uncertainties are due to fact I refused to discuss proposal, stating merely we would submit outline to our Government and Council but would recommend adversely, and expected prompt rejection. Meetings are adjourned pending your reply. East’s arguments covered Peru’s uncertain future and present exchange shortage as previously presented during sessions and fully reported by mail to Department but also asserted budget item was not a token account but a considered estimate of Peru’s capacity while Mexican settlement and a recent National City Bank compromise on Chilean notes furnished proper precedents.⁴⁹ East refuses to acknowledge Peru’s exchange holdings exceed 15 million dollars and his analogies if applicable in principle would not support proposal made. We consider proposal preposterous because reduces principal, amounts to one-third per United States minimum service capacity and acceptance would undermine status in South America of all international money obligations, past and future. The gap between Peru’s insincerely supported proposal and anything deserving consideration is too great to be bridged by continued negotiations now and any practicable settlement requires a new start. I, therefore, recommend instructions to terminate negotiations politely but firmly after reviewing orally and by memorandum our reasons and analyzing deficiencies in Peru’s attitude and arguments, indicating finally that if later a temporary plan would meet East’s anxiety about future exchange supply we would return to negotiate one on higher rates. This last suggestion intended encourage reopening negotiations on wholly fresh basis. Recommend also that Council request the Department to request our Ambassador to support promptly our general attitude by a formal note expressing approval of our position taken. Watson⁵⁰ concurs fully in comment and policy and will try to arrange concurrent action by British Ambassador⁵¹ but is embarrassed by his continued exclusion from conferences although discussions covered both dollar and sterling issues. We think visit not wasted as Lima now awakened to bond problem and if we make firm and clear record Peruvian Government must face criticism. Probably nothing achieved in future until our national economic policy more integrated and influence of war measures more reduced. Our Embassy especially the Ambassador and Greenup, have been unsparingly active and helpful. [Rogers.]

I concur in Rogers foregoing recommendation unless Department perceives some method of more forceful action as suggested Department’s telegram no. 403 [463] May 6, 5 [1] p.m.⁵² and in recent Embassy despatches.

White

49. In omitted portion of despatch 285, May 11, 1944, infra, the Ambassador reported that the basis for agreement in these two cases appears to have been the use of exchange rates prevailing at the time the debts were contracted.
50. G. M. Watson, representative in Peru of the Bank of England and of the British Council of Foreign Bondholders.
51. Victor Courtenay Walter Forbes.
52. Not printed; the telegram indicated apprehension that the negotiations might prove fruitless and requested information as to any other approach that might be used (823.51/1543).