821.51/2533

The Colombian Embassy to the Department of State

[Memorandum—Translation]

The Government is facing very serious difficulties at this time with regard to a permanent settlement of its foreign debt. Aside from the [Page 704] fall in the price of coffee, which has reduced the value of its exports by 40 per cent, the decrease in public revenue, and particularly the customs revenue, has created a fiscal crisis which is causing the Government and public opinion deep anxiety. In recent months the curve of revenues has dropped startlingly and the Government has found itself obliged to restrict public expenditures even in essential sectors of the Administration. In these circumstances, the time may come when public opinion would consider the service of the debt to be an insupportable charge, because that service might coincide with new retrenchments in other sectors of the public services which neither the citizens nor the Government will be easily resigned to sacrificing.

Notwithstanding these difficulties, the Government is prepared to effect a definitive settlement of the debt, provided that it is possible to leave a door open to allow a temporary suspension of the service if economic and fiscal conditions should make it impossible to carry out such settlement. That suspension is not to mean a return, purely and simply, to a unilaterally decreed moratorium, but a respite which would follow from the very terms of the agreement concluded. In other words, the temporary suspension would be the result of the contractual provisions, accepted in advance by the bondholders. It would not be difficult to find a formula which would leave the conversion definitively realized, which would in the future permit a temporary suspension of the payment of one or more coupons when economic and fiscal conditions should make such payment impossible. This would have the advantage that, with conversion definitively effected and the problem accordingly settled, it nevertheless imposes conditions on the service of a new bond for the future. The development of world affairs shows us how the economic and fiscal panorama can change in a moment, and how it is but elementary prudence to leave the door open in order that the country’s obligations may at any time be accommodated to sharp variations in its economy.

This is a relatively new criterion in the field of public credit, but it is beginning to be well understood in universal financial circles in a world as convulsed as that in which it has fallen to us to live. It is not possible to continue to be attached to ancient formulas or exposed to an indefinite suspension of contracts, when circumstances over which we have no control may make a temporary suspension necessary. In order to avoid it, procedures may be found which are adapted with greater facility than those hitherto followed to the periodic or occasional alterations in world economy or in the economics of each nation.

If the Protective Council should decide to accept these views, which are put into effect in the formula set forth below, it would have taken a most important step. The formula which, in the Government’s [Page 705] opinion, might be accepted in the present circumstances should fill the following conditions:

(1)
Bonds now in circulation should be changed for new bonds at a fixed interest of 3 per cent.
(2)
Coupons in arrears could be changed for long-term script, bearing no interest, amortization through purchases in the open market, the coupons being capitalized for this purpose at an equitable rate.
(3)
Annual service should not exceed the amount of $1,800,000, U. S. currency.
(4)
It should only exceed this figure, without going beyond that of $2,000,000, U.S. currency, in those years when the economic and fiscal situation improves. That degree of improvement could be indicated by the time when customs revenue amounts to $40,000,000, Colombian currency.
(5)
The Government should be given the power to suspend temporarily payment of any interest coupon and the amortization service, when economic and fiscal conditions descend to a specified level. It is suggested that such level might likewise be indicated by the customs revenue. It would be considered to have fallen below the limit of the country’s capacities of payment when the customs revenue should not have produced, in the six months preceding the date of maturity of the coupon, the average of the proceeds of the present year of 1940. Such average can be estimated today at 32,000,000, as against $40,000,000, the actual proceeds of the preceding year.

In these circumstances the Government would be prepared, notwithstanding the gravity of present conditions, immediately to issue an extraordinary decree to adjust the service of the American external debt and to have the problems settled for future years.