816.51/1188
The President of the Foreign Bondholders Protective Council ( Munro ) to the Salvadoran Under Secretary of Finance ( Bustamante )69
My Dear Señor Bustamante: At our conference yesterday you asked me to give you a memorandum of my understanding of the purport of our recent conversations regarding the resumption of service on the dollar bonds of El Salvador.
As I understand it, the Government of El Salavador proposes to pay interest on the dollar and sterling bonds at present outstanding at one-half of the rates fixed by the contract of 1922. The Government would provide a minimum of $800,000 U.S. Currency per annum for interest and amortization on the A, B and C bonds now outstanding, not including those which have been or are being purchased by the Government. So much of this sum as was not needed for interest service would be used for the purchase of bonds in the market, or by drawings at par if the bonds sold over par, all bonds so purchased to be cancelled. I also understand that the Government plans to use the proceeds of the new coffee export tax exclusively for the service of its now outstanding debts, so that a considerable sum would be available for additional amortization in years when coffee prices were good. On the other hand it would be stipulated that amortization in excess of contractual requirements in any given year might be taken into account in calculating amortization requirements in subsequent years.
[Page 341]45% of such portion of the $800,000 annual service fund as was available for amortization would be applied to the retirement of the new 4% bonds and 30% to the retirement of the new 3½% bonds. All bonds would be retired within thirty years from January 1, 1944.
The back interest on bonds which did not receive payments under the 193370 and 1936 plans, for the period when payments were being made under these plans, would be paid in cash at the rates provided in the plans. Back interest on all of the dollar bonds, from the time when payments under the 1936 plan ceased, would be satisfied by the issue of new 3½% bonds to an amount equal to one-half of the arrears calculated at the rates of the 1922 contract.
Outstanding scrip would be paid in cash at fifteen per cent of the face value.
The new plan would become effective as of January 1, 1944. The registration requirements of the Securities and Exchange Commission might make it impossible actually to make an offer to the bondholders by that date but the new bonds would in any event be dated January 1, 1944.
The bondholders accepting the plan would agree to the abolition of the office of the Fiscal Agent.
I am authorized to say that the Council would recommend that the holders of the dollar bonds accept a settlement along the above lines. As I told you, the Council is not authorized to negotiate for the holders of the sterling bonds. I have, however, informed the President of the British Council of Foreign Bondholders of the tenor of our conversation, since you requested me to do this.
In cases where the Council negotiates and recommends a permanent settlement it requests the debtor government to include in the law or decree authorizing the resumption of service a provision instructing the Government’s paying agents to deduct and remit to the Council, from the first monies paid to each bondholder, a sum equal to one-eighth of one per cent of the original face value of his bonds, or $1.25 per thousand dollar bond.
Very sincerely yours,