821.51/2528⅝

The Colombian Ambassador ( Turbay ) to the Under Secretary of State ( Welles )

Dear Mr. Welles: Over a year ago, my Government directed its Ambassador at Washington to renew the offer presented in Bogotá in 1937 to Mr. Munro of the Foreign Bondholders Protective Council, Inc. for the settlement of the dollar debt of the Republic represented by its External Sinking Fund Gold Bonds of 1927 and 1928.16 To this end the Minister of Finance prepared a detailed study of Colombia’s financial condition which the Ambassador submitted to the Council.

In the Fall of 1939, on behalf of my Government I took up the negotiations with Mr. Traphagen, representative of the Council. Unfortunately, notwithstanding the cordiality of our meetings and the sympathetic understanding which Mr. Traphagen showed of the increasing difficulties which the war had introduced, we were unable to find common ground on which to reach an accord.

In the early part of 1940, you and Messrs. Morgenthau and Jones most helpfully mediated and proposed a temporary settlement which Mr. Traphagen and I agreed to recommend to our principals. My Government accepted this without reserve but on the understanding, which was confirmed to it, that the Council would recommend to the bondholders acceptance of the proposed temporary settlement. The settlement was announced to the bondholders and has been carried out by my Government. The Council’s announcement confined itself to the comment that the settlement “is a step in the right direction and the bondholders may consider it to their interest to take the amount offered for this year.” The Council refused to say even indirectly that it recommended acceptance of the settlement.

In spite of this disappointing experience, I reopened negotiations with the Council looking to a permanent settlement. Again, Mr. Traphagen proved to be a most helpful and sympathetic negotiator but again the Council failed, in my opinion, to understand the effort and sacrifice which the settlement under consideration represented [Page 711] for my country. When on July 6 you and Messrs. Jones and Bell offered your good offices as mediators, Mr. Traphagen and I agreed with you and with each other to recommend to our principals the proposal which you suggested. This was on the following terms:

Current interest at 3% on new bonds to be issued in exchange for an equal principal amount of old 6% bonds;

Exchange of new 3% bonds of a principal amount equal to one-half of the face amount of the coupons in arrears; and

Total annual service fund for interest and amortization of the new bonds of $1,800,000, to be increased to $2,000,000 beginning with the sixth year.

It was understood, in view of the expiration on July 20 of this year of the authority delegated by the Congress of my country to agree to a settlement, that we should seek to secure acceptance of the proposal without delay. Not until July 15 did the Council reach its decision and this, as I am informed, was in no sense responsive to your proposal.

I am happy to confirm that my Government has authorized me to state, on the other hand, that it accepts the proposal and is prepared to offer to the bondholders a permanent settlement on the terms suggested by you, Mr. Jones and Mr. Bell. My Government has reached this decision, in spite of the continued unfavorable financial conditions, encouraged by the constructive spirit and understanding shown by you and Messrs. Jones and Bell, impelled by a desire to demonstrate its appreciation of this attitude, and convinced that the bondholders themselves will understand the difficulties we have had to surmount and will appreciate that the settlement is for them equitable and just.

The failure of the Council to respond to the proposal made by you and Messrs. Jones and Bell and the limits of time, have made it impossible to complete the agreement before July 20 as we all had hoped. Notwithstanding this, the Government, [having] decided to carry out its desire to put on a permanent basis the service of the dollar loans of 1927 and 1928 resumed with the temporary settlement of February of this year, has issued a decree authorizing the proper officers to offer to the bondholders a permanent settlement on terms not to exceed those accepted by the Colombian Government. The decree calls for approval of this offer by the Colombian Loan Commission and this will be submitted for such approval as soon as the necessary formal arrangements can be made.

Permit me, my dear Mr. Welles, to add to the expressions made on behalf of my Government my personal appreciation of the friendly attitude which you and Mr. Jones and Mr. Bell have shown.

Very sincerely yours,

Gabriel Turbay
  1. See Foreign Bondholders Protective Council, Inc., Annual Report, 1937 (New York, 1938), pp. 228–230.