816.51/1165

Memorandum of Conversation, by the Assistant Chief of the Division of the American Republics (Cabot)

Participants: Dr. Dana Munro, President, Foreign Bondholders Protective Council.
Dr. Bustamante, Under Secretary of Finance, El Salvador.
Mr. Cabot, Department of State.

I took Dr. Dana Munro to call at the Salvadoran Embassy this morning in order that he might discuss with Dr. Bustamante the possible resumption of service on the outstanding Salvadoran foreign bond indebtedness. Dr. Bustamante presented the following plan to Dr. Munro:

1.
Entirely new bonds issued to the present bondholders.
2.
Uniform interest of 3% to be paid to the present A, B and C bondholders.
3.
Thirty year amortization period.
4.
Outstanding unpaid interest to be refunded at 50% of face.
5.
The Fiscal Agency to be abolished.
6.
The Salvadoran Government to be permitted to buy bonds at will at market prices.

Dr. Bustamante and Dr. Munro discussed this proposition at some length. Dr. Bustamante explained that his Government wished to issue new bonds in order to abolish the Fiscal Agency, which was costing the Salvadoran Government about $50,000 a year. He pointed out that this could better be applied to service on the bonds. Dr. Munro intimated that this would be advantageous, but pointed out that the Salvadoran proposals would have to be accepted by substantially all of the bondholders before the Agency could be abolished. He then said that the interest rate proposed by the Salvadorans appeared to be rather low, and that he felt that A bondholders would be unwilling to accept the same treatment as that given the B and C bondholders. This seemed to be the point in the Salvadoran plan which he was the least willing to accept. Both he and Dr. Bustamante made all the points they could, most of which were obvious, to support their respective theses. Eventually Dr. Bustamante said that he would send Dr. Munro a memorandum explaining in detail the Salvadoran Government’s proposals. They are planning to meet again in New York or Princeton next week.

No mention was made in the talk of connecting debt service with coffee prices. I refrained from any comment whatsoever in the course of the discussions.