816.51/1157

The Secretary of State to the Chargé in El Salvador ( Cade )

No. 309

Sir: There are enclosed memoranda66 prepared by Mr. Dana G. Munro, President of the Foreign Bondholders Protective Council, reporting conversations he had on July 1 and August 7, 1943, with Dr. Arturo Bustamante, head of the Economic Mission recently dispatched to this country by the Government of El Salvador, one of the purposes of which was “to try to arrive at an agreement on the readjustment of the foreign debt of El Salvador, service of which is suspended.” Memoranda of conversations on this subject between Dr. Bustamante and members of the Department’s staff have already been transmitted to you.

It appears that Dr. Bustamante had not been authorized to negotiate on any basis of settlement other than a uniform 3 percent interest rate applicable alike on the 8 percent bonds of series A, and 6 percent sterling bonds of series B, and the 7 percent bonds of series C, in spite of the specific priority established in favor of the A bonds by the 1922 contract, which has now returned to force through the failure of the 1936 agreement, and in spite of the different interest rates the three series of bonds have received both under the 1922 contract and the 1936 agreement. Under the circumstances little concrete progress toward a new settlement was made, although the cordiality of the conversations appears to have established a favorable basis for the conduct of future negotiations between the Government of El Salvador and the Foreign Bondholders Protective Council.

The Department continues greatly interested in the obtaining of an early adjustment and regularization of the Salvadoran foreign debt. The Department believes it should be possible to devise some proposal within El Salvador’s capacity to pay which may be more acceptable to the Council than a uniform 3 percent rate proposal unaccompanied by any provisions offering holders of the higher ranking bonds some compensation for the sacrifice of their prior rights and higher interest rate. It is requested that the Embassy continue to manifest an active interest in this matter and endeavor to promote an early resumption of negotiations with the Council on terms taking into account the special difficulties which the Council has seen in meeting Dr. Bustamante’s first proposal.

Very truly yours.

For the Secretary of State:
A. A. Berle, Jr.
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