800.51W89 Hungary/173

Memorandum by the Adviser on International Economic Affairs (Feis)

The Financial Attaché of the Hungarian Embassy visited me in order to try to plan for the further discussion of a refunding arrangement for the debt of the Hungarian Government to this Government. He stated that he was acting in accordance with instructions and indications received by him in the past. It will be recalled that during the discussions held between him and the Hungarian Minister regarding the arrangements for the December 15 payment they then advanced the purpose of entering into discussions for a new permanent debt arrangement, and were told that presently this Government would be disposed to consider the matter.

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Mr. Havas indicated the terms which the Hungarian Government had in mind were roughly as follows—though he made clear that he had not the authority to commit his Government to anything concrete at this time: (1) Recognition of the principal of the debt; (2) credit against this principal of payments made up to the present by the Hungarian Government; (3) discharge of the remainder in, say, 25 or 30 annuities. This would call for a payment of around $40,000 a year, approximately double the payment being made under their temporary offer. Under this temporary offer, however, the payments made are merely credited to account, while of course under a new debt funding arrangement they would be in full discharge of the debt. Mr. Havas advanced various reasons as to why this was a fair offer and also stated that if used by us as a basis for other debt negotiations would mean very substantial debt receipts.

I did not attempt to examine the specific ideas very closely, merely indicating a general interest in them and manifesting in general a disposition to encourage later discussions. I explained to him that as he knew, all new debt arrangements would have to be approved by Congress. Further, at this present moment there is a certain unsettled question as to the manner of conducting debt refunding discussions with foreign governments; I did not know for example whether it would be decided it was necessary before such discussions to constitute again some such body as the debt funding commission which has negotiated the original settlements. Furthermore, I pointed out that this of course was a question in which the Treasury Department was likely to have a leading voice and responsibility.

For all these reasons, I asked him to permit the matter to rest until after the first of next year, at which time I would secure consideration for it.

I believe serious attention should be given to the arrangement for such discussions so that they may be properly timed in relation to other matters.

H[erbert] F[eis]