821.51/2587a: Telegram
The Secretary of State to the Ambassador in Colombia (Braden)
262. The Colombian Embassy and the Department are issuing press statements today for Tuesday morning release regarding the permanent debt offer to the holders of the Colombian national dollar bonds. The Council is withholding comment at the moment, but may subsequently criticize the offer although the Department hopes that this may still be avoided.
Please furnish the Foreign Office with a copy of the Department’s press release, the text of which follows:
“The Government of the Republic of Colombia, after maintaining full debt service on its Six Per Cent Bonds, $25,000,000 of which were issued through the usual private financial channels in 1927, and $35,000,000 in 1928, finally in 1933 was forced to suspend payments. However, before suspending payments approximately $3,800,000 of the first issue and $5,000,000 of the second issue had been paid, reducing the amount of bonds then outstanding from $60,000,000 to approximately $51,200,000. In 1933 the Colombian Government made an additional payment in Non-Interest-Bearing Deferred Interest Certificates of $1,799,534.00 which were redeemed at maturity in 1937, and in 1934 a further payment in 12-year Four Per Cent Funding Certificates of $3,743,145.00 which it has regularly serviced.
Since that time the Colombian Government has carried on prolonged negotiations with representatives of the bondholders, in an effort to reach an agreement as to payment and an interest rate that the Colombian Government felt it would be able to meet. No permanent agreement has yet been reached.
About a year ago the Department of State, with the cooperation of the Treasury Department and the Federal Loan Administrator, acting [Page 720] merely as friendly intermediaries, began meeting with representatives of the Colombian Government and the Foreign Bondholders Protective Council, Inc. of New York in the hope of finding some common ground of adjustment that would be acceptable to both parties.
Some progress was made and in the expectation of reaching a permanent agreement during 1940 the Colombian Government this year has paid 3 percent on both issues, amounting to approximately $1,350,000, and has expended approximately $400,000 in the purchase and retirement of bonds. These bonds and approximately $6,000,000 face value of bonds theretofore purchased by the Colombian Government have been canceled so that the total outstanding amount at the present time on both issues is about $44,000,000 with accrued interest at 6 percent of $12,200,000.
The Colombian Government now offers to refund the principal of $44,000,000 and accumulated interest at 3 percent amounting to $6,100,000, a total of about $50,100,000, with new Three Per Cent Bonds of a maturity of 25 to 30 years, the exact date to be indicated in the formal detailed offer to be issued shortly. To service the new bonds it offers to make available $1,800,000 per year for 5 years and $2,000,000 per year thereafter. The amounts not required for interest at 3 percent per annum are to be devoted entirely to the purchase in the market and cancelation of the new bonds.
While the Government of the United States has no direct interest in the matter, the Department of State, the Treasury Department and the Federal Loan Administrator have acted as friendly intermediaries to assist the parties in reaching an agreement, and they are of the opinion that in view of conditions that have prevailed since 1932, the offer of the Colombian Government constitutes a fair effort on its part to adjust its obligations. They recognize, of course, that the bondholders must make their own decision.”