I replied to the British Minister that I perceived of no reason why he
should not request such action of his Foreign Office, but that without
instructions from the Department, I should not be in position to assist
him, even informally, in presenting his views to Guatemalan
officials.
A memorandum prepared by the British Legation, a copy of which is
transmitted herewith, gives a history of the British claim in outline
form.
[Enclosure]
Memorandum Prepared by the British Legation in
Guatemala on the Four Percent External Debt of
Guatemala
1. The origin of the Debt dates from 1827, when Guatemala took over
5/12 (£67,900,–) of the Six per cent Loan issued in London on behalf
of the Central American Federation.
2. The loan was in default from 1828 to 1855.
3. An arrangement was made in 1856 whereby the capital and the
arrears of interest were reduced to £100,000 bearing 5% interest. As
a security 50% of the Customs Dues was hypothecated.
4. In 1863 a loan for £11,300 bearing 5% interest was contracted for
public improvements. This loan went into default in February
1864.
5. In 1869 a loan for £500,000 bearing interest at 6% with an
accumulative Sinking Fund of 3% was issued. The import duties were
assigned as a security for this Loan.
6. In 1876, the loans of 1856 and 1869 went into default.
7. In 1878, one-third of the coupon due 1st April, 1876, on the 1869
loan was paid in November; no payment being made on the subsequent
coupons.
8. The default continued until 1888 when the following arrangement
was made:
The Bondholders accepted in lieu of each £100 Bond of the 1856 Loan
with £62.1.8d. interest arrears, a new Four Per Cent bond of
£144.14.0 and in lieu of each £100 Bond of the 1869 Loan, with
£72.10.9d. interest arrears on a new Four per Cent Bond of
£152.4.0.
The total amount of new bonds issued was £922.700.
The Internal Debt was converted upon similar conditions at the rate
of £16. per $100.–The interest was payable quarterly at the annual
rate of 6%. The bonds were issued in Guatemala and were introduced
upon the London market in 1888. The total introduced was
$6,400,000.—£1,024,000.
The 1863 loan was included in the conversion, £144.14.0. in new Bonds
being given for each old bond and interest arrears amounting to
£119.11.8.
9. In 1894, default took place upon both the External and the
Internal Consolidated Debts.
10. In 1895 a new arrangement was accepted by the Bondholders on the
following bases:
Unification of the External Debt (amount outstanding £890,300) and in
internal Debt (amount outstanding $6,025,900—£964,144) into a new
Four per cent External Debt for £1,600,000. The External Bonds, with
arrears of interest from 1st of January 1894 to the 30th of June
1895, to be converted at the rate of £75. New for £100 Old Bonds.
The Internal Bonds, with arrears of interest for the same
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period, to be converted at
the rate of £75. New for each $500.–or £80–Old Bonds.
A non-accumulative Sinking Fund of £15,000 per annum was created to
be applied by purchases on the market.
The Bonds were secured by a special tax of $½ gold (six shillings)
per quintal of coffee exported, fixed irrevocable at this rate for
10 years, commencing 1st. July 1895, the proceeds to be paid to the
Agent of the Bondholders at Guatemala.
11. The Guatemalan Government violated this contract the same year
(1895).
12. In 1898 a new arrangement was concluded for three years reducing
the interest rate to 2% in cash and 2% in certificates; full cash
payment to be resumed on the coupon falling due 31st of December,
1901. The certificates to be exchanged for Four per Cent Bonds after
the 30th of June 1901. Amortization to be suspended for three years
and to be reduced from 1901 to 1908 to £6000. a year and thereafter
to be fixed at the full rate of £15,000 per annum.
13. The Debt went into default in 1899.
14. From 1899 to 1913, several arrangements were concluded with the
Bondholders, but the Guatemalan Government failed to ratify them. In
the meantime the Guatemalan Government assigned the revenue pledged
to the Bondholders to secure other obligations.
15. In 1913, through the good offices of His Majesty’s Legation, an
agreement for the resumption of the operation of the Arrangement of
1895 was effected on the following terms:
- 1.
- The Government to deliver to the representative of the
Bondholders by the 1st July, 1913, Warrants for the payment
of the Coffee Export Duties sufficient to cover the interest
due for the year 1913–14; no other Warrants to be admitted
in payment of the said duties until those intended for the
service of the Debt have been cashed;
- 2.
- In exchange for the Certificates issued under the
Arrangement of 1898, the Government to issue £29,656 new
Bonds of the Four per Cent External Debt, with Coupons from
31st. December, 1901, inclusive, attached;
- 3.
- In exchange for the overdue Coupons unpaid up to 30th
June, 1913, the Government to issue Deferred Certificates
for an equal amount, bearing no interest;
- 4.
- The sinking fund of £15,000 per annum to be suspended for
four years from 1st July, 1913;
- 5.
- Upon the termination of these four years the Council of
Foreign Bondholders to treat with the Government as to the
means of amortizing the Deferred Certificates referred to in
(3).
16. The obligation of the Government under the above Agreement to
resume the Sinking Fund was not fulfilled until October 1919, when
the Guatemalan Government paid the two years in arrears.
17. The stipulation regarding the settlement of the arrears of
interest has not yet been carried into effect.
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18. The war conditions of 1917, which reduced the revenue, and the
losses sustained by the earthquakes of 1917 and 1918 were the
reasons given by the Guatemalan Government for their failure to
fulfil the stipulation.
19. Later on political disturbances and the urgent necessity to
effect the stabilization of the currency were the grounds on which
the Guatemalan Government based their refusal to open negotiations
with the Bondholders for a settlement of the outstanding
question.
20. In 1925, the Council of Foreign Bondholders urged the Guatemalan
Government to discuss the matter, to which the Minister of Finance
assented.
21. Mr. J. P. Armstrong was appointed special representative of the
Council of Foreign Bondholders for this purpose.
22. The proposals of the Bondholders are as follows:
- 1.
- The total amount outstanding to be funded immediately into
Bearer Bonds of £100. each with interest coupons at 4%
payable in 30 years.
- 2.
- If the Government are unable to remit more than the
interest at present (£34,000.) the Sinking Fund should be
deferred for three years, in which case the annuity would be
increased from 2% to 2½%.
- 3.
- The new Bonds shall be formally guaranteed by the $1– of
the Coffee Export Duties assigned for the service of the
existing bonds.
23. The arrears of interest amount to £844,603.
