On receipt of the Department’s telegram, a note was addressed to the
Foreign Office, in compliance with local protocol, requesting an
audience with the President. As reported in my telegram No. 218 of
today,41 President
Arias received me on December 7. I enclose a, memorandum covering in
detail that portion of our conversation which dealt with the Debt
Readjustment Plan. As stated in my telegram, [Page 1098] it is my impression that as a result
of my interview with the President the matter will receive further
serious consideration within the next few days.
[Enclosure]
Memorandum of Conversation Between President
Arias and Ambassador Dawson, December 7, 1940
The conversation was in Spanish and in informing the President of the
Department’s viewpoint I referred to notes which I had prepared
along the lines of the Department’s telegram No. 178 of November
30.
I stated that the Department was seriously concerned lest the
Readjustment Plan be defeated in case the Panamanian Government did
not accede to the reduction recommended by the Financial Advisers in
the percentage of bonds required to place it in effect; that the
Advisers assured the Department that, if the reduction in question
could be announced in the press, the plan would be accepted
immediately by at least sixty-six per cent of the bondholders and
probably more; that, as the President knew, a considerable number of
bondholders were unable to deposit their holdings for reasons
connected with the European war; and that, taking into account this
and other circumstances, the Department felt that the percentage
deposited showed that the plan had had a very favorable reception on
the part of the bondholders. I pointed out that, if the plan were to
fail, the immediate result would be a very confused situation and a
series of lawsuits the duration of which could not be foreseen (I
referred here briefly to litigation already pending); and that on
the other hand the plan offered a unique opportunity to settle the
debt definitively on favorable terms and to the immediate advantage
of Panama’s credit and prestige. I added that in my opinion this
would create an excellent impression and represent a success for the
new administration.
Continuing, I said that the fact that the Government had granted two
extensions was encouraging and evidenced a desire to reach a
definitive settlement; but that this desire would prove ineffective
unless the Government consented to the reduction of the percentage
which was indispensable if the plan were to be placed in operation.
I stated that, believing the matter to be one of real importance to
Panama, the Department had instructed me to request an audience for
the purpose of expressing to the President its great interest in the
success of the plan and its belief that it should be brought to a
favorable conclusion very soon. I added that the Department did not
attempt to express any opinion as to technical details or changes
which the Panamanian Government might wish to suggest. I concluded
this [Page 1099] phase of my remarks
by stating emphatically that the Department was sincerely interested
in an early solution of the debt problem; that it considered that
the present plan offered such a solution; that it knew of no other
solution more satisfactory to the Government or to the bondholders;
and that it saw clearly that the failure of the plan, after it had
advanced so far, would entail unfortunate consequences.
At one point (just before I referred to the extensions already
granted) the President interrupted me to say that he had never liked
the plan and did not consider it advantageous, that it entailed
undue expense for commissions and other items, that it would leave
Panamá still in default as respects unassented bonds, and that it
was his hope that in return for leases on the Río Hato and other
tracts desired by the Army the Panamanian Government would receive
such generous treatment from the United States as to permit it to
settle its foreign debt in full and “clean the slate”. I asked his
leave, before discussing these points, to complete my statement
regarding the Department’s position. Having completed my statement,
as set forth above, I reverted to the President’s objections to the
plan. I said that, as respects commissions, the matter was one which
could no doubt be discussed with Mr. Train, representing the
Financial Advisers; that the same applied to any other changes which
the Government might desire to suggest for the improvement of the
plan from its standpoint; and that with regard to the unassented
bonds I did not believe the Government’s concern justified since it
was to be anticipated that, once the plan went into effect, the
status of nonassenting holders would be relatively so much less
favorable that they would presumably hasten to join up. (It may be
noted that my statements in this connection were in line with
conversations which I had had with Mr. Train who on the basis of his
talks with the Secretary of Finance41a had foreseen the points which the
President would raise.)
I took advantage of the President’s reference to compensation in
return for leases (of tracts needed for defense purposes) to
endeavor to ascertain what he had in mind and also for some further
discussion of other details pertaining to the lease negotiations.
This will be dealt with in a separate memorandum.42 With respect to his idea
of linking this matter up with a debt settlement, I pointed out that
in my opinion this was inadvisable. I said that the present
settlement was a good one for Panamá and that it had been approved
by the Council of Foreign Bondholders and accepted by a very
substantial number of bondholders. I expressed the opinion that
there was no occasion for Panamá to do anything more and that the
best course for all concerned would be to bring the proposed plan to
a successful conclusion [Page 1100]
as promptly as possible. (While I did not so say to the President, I
do not for a moment believe that the Panamanian Government would,
when the time came, find it desirable or perhaps even feasible to
use eventual rental funds for the purpose of offering bondholders
terms more favorable than those already negotiated and accepted by
the bondholders.)
In conclusion, I reiterated to the President the Department’s lively
interest in the success of the present plan and in the speedy
conclusion of a settlement. I said that the Department does not
participate in negotiations and that the Embassy would not of course
do so either. I said, however, that if my informal good offices
could be of any assistance as respects the Government’s
conversations with Mr. Train, I should be happy to help in any
proper way. The President said that he and his advisers would
proceed to give further study to the plan in the light of what I had
said; and that some way might be found, as respects one or two
points, of making it more acceptable from the Panamanian viewpoint.
He left me with the impression that the matter is going to receive
further serious consideration within the next few days.
Incidentally, I pointed out to the President that any changes
suggested should concern details only and should not affect the
structure of the plan, since a change in structure would entail
great delay and probably necessitate the issuance of a new
prospectus. The President said that he fully appreciated this.
I may explain that the offer of my informal good offices was made in
agreement with Mr. Train largely for the following reason: Mr. Train
has been authorized to make certain changes which should, he
believes, please the Panamanian Government. For the psychological
effect, instead of proposing these changes immediately himself, he
would like to see the situation develop in such a manner as to make
it appear that the Panamanians have had the initiative and that the
present administration can claim credit for having materially
improved the plan of its predecessor.
